Mortgages and deeds of trust - Next Generation Bar Exam
- What is an equitable mortgage?
- A transaction that a court treats as a mortgage despite its form, such as an absolute deed intended as security. Courts look to the parties' intent and the existence of a debt.
- What is the effect of a buyer taking property 'subject to' an existing mortgage?
- The buyer is not personally liable on the debt, though the property remains subject to foreclosure. The original mortgagor remains personally liable.
- What is the effect of a buyer 'assuming' an existing mortgage?
- The buyer becomes personally liable for the debt. The original mortgagor remains liable as a surety unless released.
- What is a purchase-money mortgage?
- A mortgage given to secure a loan used to buy the mortgaged property. It generally has priority over earlier judgment liens against the buyer.
- What is a due-on-sale clause?
- A provision allowing the lender to accelerate the debt if the property is transferred. Federal law generally makes such clauses enforceable.
- What is a deed of trust?
- A security instrument in which the borrower conveys title to a trustee to hold for the lender. On default, the trustee may sell the property under a power of sale.
- What is a future-advance mortgage?
- A mortgage securing advances made after the mortgage is executed, such as a line of credit. Obligatory advances generally retain the mortgage's original priority.
- Under the prevailing view, what is the effect of transferring a mortgage note without the mortgage?
- The mortgage follows the note. A transfer of the mortgage without the note is generally a nullity.
- A buyer purchases a house 'subject to' the seller's mortgage. The buyer stops paying, and the foreclosure sale leaves a deficiency. Who is personally liable for the deficiency?
- The seller, as the original mortgagor. A buyer who takes subject to a mortgage has no personal liability.
- What is the effect of a modification of a senior mortgage that increases its interest rate on a junior mortgagee?
- The senior mortgage loses priority to the junior to the extent of the increase. A junior lienor is protected from prejudicial modifications.
- What is the general rule on mortgage priority?
- First in time, first in right, subject to the recording acts. Purchase-money mortgages and subordination agreements are exceptions.
- What is a mortgage note?
- The instrument evidencing the borrower's personal obligation to repay. The mortgage secures the note.
- A buyer assumes the seller's mortgage and later defaults. After foreclosure there is a deficiency. Against whom may the lender seek the deficiency?
- Both the buyer and the seller. The assuming buyer is primarily liable, and the seller remains secondarily liable.