JMR_RealEstate COMMON TERMS Mortgagor – person who borrows $$ to buy a piece of property Vendor – person or agency that sells

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Mortgagee – lender/creditor Vendee – buyer


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Warranties of Quality A. Stambovsky v. Ackley Rule: A condition that impairs the value of property, known to the seller and left undisclosed to the buyer can constitute a basis for rescission of the contract.  Where a condition which has been created by the seller materially impairs the value of the contract and is peculiarly within the knowledge of the seller or unlikely to be discovered by a prudent purchaser exercising due care with respect to the subject transaction, nondisclosure constitutes a basis for rescission as a matter of equity a) Notes o Growing trend to treat silence as fraudulent concealment if the matter not disclosed is material  Additional factors that tend to increase the probability of seller liability include  Property is a personal residence  Defect is dangerous to health or safety  Seller personally created the defect  Seller gave reassurances to the buyer  Purchaser did not rely on a professional inspection o New houses by builders = Implied warranty o Old houses = outright fraud claims, fraudulement concealment theory, any express warranties or contract covenants o Psychologically impacted – many states have adopted statutes that preclude liability of sellers for failure to disclose a home that is “psychologically impacted” B. Speight v. Walters Development Co., Facts – suit for breach of implied warranty of workmanlike construction against the builder. After purchase, buyers noticed water damage and mold  Implied Warranty of Workmanlike Construction – requires that a building be constructed in a reasonably good and workmanlike manner and be reasonably fit for the intended purpose Issue – can they sue under implied warranty for a subsequent purchaser? Rule: Doctrine of Implied warrantly of workmanlike construction applies to subsequent, as well as initial purchasers  Notes o Statutes of Repose – Statutes of limitation specifically for construction cases. Incorporate the „discovery rule‟ into their time periods and do not begin to run until the injury was or should have been discovered. o Express disclaimer can negate the implied warranty, but it must be clear and unambiguous

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JMR_RealEstate o NOR statutes (notice and repair) – 30 states have adopted which require property owners to put builders on noite of construction defect claims and give them an opportunity to fix before suit is filed C. Title Covenants in Deeds o Title Assurance - set of mechanisms which buyers of land use to (1) learn whether sellers can convey title and (2) obtain recovery if the title turns out not to be as represented. o Deed Covenant – simply a statement in the deed which gives the grantee rights against the grantor if the title is not promised  Crudest and least effective  Few rely on it exclusively  Deed may contain no covenants of title at all called a Quitclaim Deed Types of Title Covenants in Deeds Covenant of Seisin – this is a promise by the grantor that he or she owns the land, although not necessarily free of encumbrances Right to Convey – usually overlaps covenant of seisin, a grantor who is AIF for the owener of the land under a valid DPA would have the right to convey, but would not have seisin Against Encumbrances – This is a promise that title is passing free of mortgages, liens, easements, future interests in others, covenants running with the land, etc. Warranty and Quiet Enjoyment – They amount to a promise by the grantor to compensate the grantee for the loss if the title turns out to be defective or subject to an encumbrance - Covenant of warranty or quiet enjoyment is prospective in nature and is breached only when there is an actual or constructive eviction Further Assurances – this is a promise by the grantor to execute such further documents as may be necessary to perfect the grantee‟s title Special Warranty Deed The most obvious point of similarity between deed covenants and the contract covenant is that both are concerned with title Deed covenants of title are not breached by legal violations that don’t themselves affect title. Thus, existing conditions which breach local zoning or other ordinances are not usually considered to violate deed covenants of title Important Differences between Contract Covenants and Deed Covenants for Title o Remedies Available  Discover that title is unmarketable  Contract: rescind, may also get specific performance  Deed Covenant: damages  Standard of Quality  Contract: good + marketable (not subject to unreasonable risk of litigation)  Deed Covenants: no such test, good title will suffice Differences between Present and Future Covenants o Distinction is important because of SOL  Present covenants – SOL starts to run when deed is delivered o Future covenants “run with the land,” present do not
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Future Covenants

Present Covenants



JMR_RealEstate D. Brown v. Lober o Fact: Limited warranty deed, missing further assurances, only present covenants o Issue: What constitutes constructive eviction? o Rule: Covenant of warranty or quiet enjoyment is prospective in nature and is breached only when there is an actual or constructive eviction  Notes  Examples of Constructive Eviction o Paramount title holder gets decree of specific performance/ejectment o Orders grantee off land or threatens litigation o Grantee buys the paramount title in order to avoid being evicted by its holder o Grantee surrenders claim and moves off the land o Sued by person with paramount title and enters a settlement  Physical interference is an actual eviction o If the government is the holder of paramount title then that fact alone will comprise an eviction  Recovery Limits o Cannot exceed the consideration received + interest, applies equally to all covenants o Limited to actual loss E. Title Assurance Methods Proof of Title o Most Government offices act as “passive depositories for the instruments” o Recording is done at the county level  Hawaii and Alaska record at the state level Title Insurance has arisen to absorb and spread most the risks that the public records system presents o Recording Acts:  Deed is effective even without being recording, but law incentivizes recording. F. Title Insurance Title insurance is the predominant method of assuring real estate in the United States today o It is the insurer‟s promise that, if title is not in the condition described in the policy the insurer will indemnify the insured the resulting losses  Obtain title searches and exams before issuing policies  Title companies spend a great deal of time any money in loss avoidance  Most losses include o Mechanic‟s Liens o Plant search errors o Examination and opinion errors o Forgeries o Property taxes G. Settlement o Closing also known as “Settlement”  1. Review the prelim title report  Obtain executed copies of the deed  Obtain funds from buyer and the new lender
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undecided. at least two courts have held that closing services. Long Term Land Contract  Vendee goes into possession and agrees to make monthly installment payments of principal and interest until the principal balance is paid off. whereas the other doesn‟t govern after closing date Page 4 of 31 .prohibits receipt of a division of fees or charges made for a settlement service.RESPA includes mortgages. The Installment Land Contract o Most common substitute for the mortgage or deed of trust as a land financing device  Aka Contract for Deed. mostly.JMR_RealEstate  Arranging for completion of inspections  Record docs  Disburse For funds specific to foreclose damages for to quiet title or installments performance his vendee's which are due the breach rescind  Lawye of the contract rights plus interest rs have a declining role in residential real estate transactions o B ut see.  Vendor keeps legal title until final payment  executes deed to the land o Different from an executory contract because it governs the parties throughout the life of the debt. and subordinate lien transactions and refinancing o Fee-Splitting. such as preparing documents and explaining them to buyers and sellers is unauthorized practice of law o Dual Representation of Buyer/Seller  Sometimes individuals cannot consent to a conflict of interest o RESPA (REAL ESTATE SETTLEMENT PROCEDURES ACT)  Giving consumers more information about settlement costs and services  Prohibits referral fees and fee-splitting among providers of settlement services  Such fees were widespread before RESPA  “controlled entities” are allowed within certain circumstances. o Can’t require use of a specific title insurer o Alternative to RESPA  It hasn‟t been as effective as intended in bringing down service prices and competitive levels – new proposal never approved GMPA H. o Expansion . other than for services actually performed  Mark-ups by lenders has been controversial o Yield Spread Premiums – RESPEA is not implicated when lender makes profit from loan origination fees  Might be implicated when Broker refers to lender and gets profit…some courts see that as possible fee splitting. if consumers have notice.

Petersen v. with no down payment and monthly installments of $50 or less. Hartell Facts: entered agreements with three grandchildren to sell portions of land. o Notes  Judicial recognition of a right of redemption. the buyer's interest is terminated and there is no enhancement value to be recovered by the buyer o Only unusual equitable circumstances create an exception to the rule that a general consequence of default is forfeiture of all interest  Notes  Strict Enforcement Approach  When a purchaser enters into a contract for a deed w/ a seller. Russell v. they run the risk of default and losing the property  Relaxing Strict Enforcement  Many state courts have in recent years refused to enforce a against a defaulting vendee forfeiture clauses that the courts have deemed unreasonable or inequitable. 2.some states allow the tardy vendee a final opportunity to pay the balance before losing the land o Page 5 of 31 .JMR_RealEstate  Forefeiture Clause – contained in almost all installment land contracts  Provides that “Time is of the essence” and that when there is a default they can o Terminate the contract o Retake possession o Retain all the payments as liquidated damages - - 1. Buyers given the right to pay the entire balance of the purchase of the price at any time. No provision making time of the essence or specifying remedies in the event of default o Kids missed payments o Granny decided to terminate contract Issue: Do plaintiffs have a right to conveyance of the property in exchange for full payment of the purchase price in light of their substantial part performance and the seller‟s notice of election to terminate the contract on account of such defaults? Rule: Vendee who has made substantial payments on a land installment contract has an unconditional right to a reasonable opportunity to complete the purchase by paying the entire remaining balance plus damages before the seller is allowed to quiet title.  Amount of $$ paid by the buyer to the seller  The period possession of the real property by the buyer  The market value of the real property at the time of default compared to original sales price  Rental potential o Upon default and forfeiture. this Court applied the following equitable considerations. Richards To determine whether a forfeiture shocks the conscience of the court.

. Theories of Title: Possession.  Notes  Treating the installment land contract as a mortgage o Judicial treatment in this manner is for remedy purposes o Some states recognize forefeiture can still occur in two circumstances  Abandonment  Only minimal payments have been made and the security has been jeopardized. was to pay $10.5% interest in $120 monthly installments. both is the seller’s financing using the property as collateral for the loan.Issue: Can clause in an installment land contract providing for forfeiture of the buyer‟s payments upon the buyer‟s default may be enforced by the seller. Sebastian v. Rental Value. and Related Considerations  Page 6 of 31 .”  Waiver or estoppels as a defense against forfeiture o Prior acceptance of late payments will constitute waiver of the forfeiture clause  Similar to Equity of remedemption II. his entire interest in the property is not forefeited o The modern trent treats land sale contracts as analgogous to conventional mortgages. o When the purchaser of property has given a mortgage and subsequently defaults on his payments. o Restatement says “installment land contract creates a mortgage” so they will be “governed procedurally and substantively by the law of mortgages. thus requiring a seller to seek a judicial sale of property upon the buyer‟s default. Costs of Repossession. Refinancing and Resale – the costs of repossession are actual damages. Rents.Rule: Seller’s remedy for breach of the contract is to obtain a judicial sale of the property o Equitable title passes to the buyer when the contract is entered  No practical distinction between the land sale contract and a purchase money mortgage. Floyd . Miscellaneous Damages 3. while other courts enforce it only if substantial payments have been made o Many courts impose a “good faith” requirement  Restitution as an alternative form of relief for the vendee  Actual Damages: Market Value.9000 plus 8. . Rights and Duties of the Parties Prior to Foreclosure A.Facts: P bought house and paid $3800 down.JMR_RealEstate Sometimes this right is unconditional. Missed 7 installments.

”  Under a duty to maintain and preserve the property o There is a limit on the duty – low standard  Avoiding Mortgagee in possession status  Because of the responsibilities. at which time legal title passes to the mortgagee •Only a few states follow •Mortgagee has the right to possession and to collect rents and profits after mortgagor default if not stated. such as receiverships to gain access to the rents and profits and control over the mortgaged real estate pending foreclosure. Statutes in some states give the motgagor the right to possession until default •2.JMR_RealEstate Intermediate Theory Title Theory Lien Theory Legal Title to the mortgaged real estate remains in the mortgagee until the mortgage is satisfied or foreclosed For practical and theoretical purposes the mortgagor = owner of the land •1. Mortgagee has a right to immediate possession against the mortgagor Lien theory means that a mortgagor. mortgagee‟s security interest is usually deemed sufficient to permit the mortgagee to take and retain possession until foreclosure  Policy consideration –we don‟t want vandalism and deterioration and prefer productive use  Liability of a mortgagee in possession  Mortgagee-in-possession status makes the mortgagee liable in tort “for injuries resulting either through is actionable fault in utilizing the property or by reason of its failures to perform duties imposed by law upon the owner of the land. prior to foreclosure. Page 7 of 31 .32+ Follow Lien Theory!  Mortagee in possession in lien states  Mortgagee may sometimes acquire possession of the mortgaged property legally by means other than foreclosure o 1) consent o 2) a mortgagee who enters into peaceable possession in good faith after purchasing at an invalid foreclosure may remain in possession until a valid foreclosure o 3) if mortgagor abandons real estate. may prevail against the mortgagee for any interference withthe mortgagor's possession of the mortgaged real estate to the same extent that any owner of land would prevail against a trespasser o Notes  Classifications of states . Commonly used mortgage forms containing similar provisions achieve the same result the mortgagee is regarded as owning a security interest only and both legal and equitable title remain in the mortgagor until foreclosure or deed •Substantial amount of jxns follow this theory •Some States providethat the mortgagee is entitled to maintain a possessory action for the mortgaged real estate •Some also state "mortgagor shall be deemed to be the owner of the land" Legal and equitable title remain in the mortgagor until a default. mortgagees use other methods.

is superior to the mortgage …some states doesn‟t matter) Priority Preferences Page 8 of 31 . trustee sale Dover purchased o Fiber said foreclosure extinguished lease and was only month to month now. foreclosed. Fiber Form Products. Dover Mobile Estates v. Fiber gave notice of Intent to Vacate. defaulted. Inc. Dover sued for rent and conversion  Lower court rules for Fiber Issue: Is a lease extinguished with foreclosure? Holding: Trustee‟s sale extinguished the lease.JMR_RealEstate 1.whether a lease is senior or subordinate to a foreclosure mortgage can have significant consequences for both the lessee and the - -  foreclosure sale purchaser (If recorded. subordinate to any deeds of trust or mortgages placed on the property unless mortgagee or beneficiary elected to have the lease be superior o Encumbered property with 2nd deed. Facts: five year lease. thereby allowing 30 days notice to vacate o A lease is generally deemed subordinate to a deed of trust if the lease was created after the deed of trust was recorded o That creates the possibility that the lease could be extinguished by foreclosure  Non-disturbance agreement o Notes  Senior vs. subordinate leases .

a strip mall to Hancock who agreed to “take over” the payments on the mortgage on the property. he did and then sough reimbursement from Hancock and foreclosure. Transfer and Discharge A. Hancock (D) did not execute any mortgage assumption agreement and when the property was no longer profitable stopped making mortgage payments. avoid closing costs (but beware of “due on sale clauses” benefits no really realized with these and almost all mortgages have them!) o Two methods to take over (1) Assuming the Mortgage (2) Taking subject to it 1. and mortgagor is willing to pay the entire debt? o Rule: (1) A purchaser of property does not assume liability on a loan secure by a mortgage where the purchaser agrees in the contract of sale to “take over” payments on the loan but does not otherwise expressly assume the mortgage. tenant is bound to the new purchaser as if it were the original landlord (kind of like assignment) o all three may be combined in a “subordination. attornment agreement” III. Tenant agrees if interest is transferred by deed or foreclosure. Middleton v. Hancock (Former Owner v. Bank told Middleton to pay up.”  Attornment – used to readjust the relationship of the parties. non-disturbance. Transfer of the Mortgagor’s Interest . Subsequent Owner) “I agree to take over” “I promise to pay” o Facts: Middleton sold Midgate plaza. (2) They do have recourse through subrogation  Page 9 of 31 . the foreclosure purchaser will permit the lease to continue and allow the tenant to remain on the leased premises so long as the tenant continues to comply with the terms of the lease and is not in default. might get a 2nd mortgage to pay off the balance of the loan being taken over  PROS: low interest rates.Many ways to finance – 1 way is to have the purchaser „take over‟ an existing mortgage loan on the property o Title is transferred. mortgage stays. o Issue: (1) Does a purchaser of property assume liability on a loan secured by a mortgage where the purchaser agrees in the contract to “take over” payments on the loan but does not otherwise expressly assume the mortgage? (2) Does an original mortgagor have recourse through subrogation when there isn‟t a mortgage assumption agreement. not foreclosed yet.JMR_RealEstate Normally assume that a tenant desires protection against a foreclosure wiping out lease rights  Varying priorities by agreement  Subordination agreement – an act by which one having an interest in particular real estate consents to a reduction in priority as against another holding an interest in the same real estate  Nondisturbance agreement – a mortgagee holding a senior lien agrees that “in the event of foreclosure. However.

(need assumption) Entitled to reimbursement from grantee if they pay. provided they assumed the obligation. Exoneration (Court ordered payment of mortgage by grantee. If property was a gift o Nature of the Mortgagee’s Right against the Grantee  Mortgagee (lender) can recover because they are a third party beneficiary  Grantee must have a direct liability to the mortgagee  •An assumption is a promise by the puchaser to make the payments and perform the other covenants in the note and the mortgage •must be express •even if original mortgage contains "promise to pay" binding "successors and assigns" of the property that covent wil not run w/ the land and become bind on a future owner in the absence of an assumption.Notes o Mortgagor liability to government agencies  FHA and VA insure or guarantee some types of mortgage loans. lender will not sustain a loss  Procedures to approve buyers to mitigate risks through HUD  Seller needs to obtain “release from liability” from lender. full payment isn‟t necessary like in subrogation.(need assumption) may obtain court order making grantee pay. Disadvantage is that it is not available for partial payments  Reimbursement. But reimbursement is insecured and if grantee is insolvent or disappears. Also can get incidentals. “Specific performance of the assumption agreement” o ALL THREE AVAILABLE IF ASSUMPTION AGREEMENT .JMR_RealEstate The Suretyship Relationship . otherwise can still be liable for debt and government can sue for a deficiency! Bullhonkey! o Assuming grantee’s assertion of defenses  Grantee is stopped to raise defenses because that would constitute unjust enrichment (even if original mortgagee defrauded the original mortgagor) o Subject-to grantee’s assertion of defenses  Some situations allowed defenses. They assure mortgage lenders that if foreclosure.The principal surety principle governs the relationship between the mortgagor and the grantee. ask for reimbursement. Kind of specific performance)  Subrogation – Mortgagor can sue the grantee on the note and foreclose if the mortgage hasn‟t already been foreclosed by the mortgagee. ex. If grantee assumed  mortgagor can subrogate. o Reimbursement (Recovery from grantee). and exonerate Options for principal–surety.SOL  Exoneration. deed or other document •Does the agreement to "take over" also establish an express promise to pay? Page 10 of 31 "Subject to" "assume it" .. but can be in the contract of sale. an express promise is required •Promise doesn't have to be written.

D. discharge is equal to value of real estate  Minority & Restatement  discharge only to extent modification would otherwise damage mortgagor o what types of modifications would result in no discharge under this rule  or extending the time maturity of the loan  Majority  completely discharges mortgagor if grantee assumed o If grantee took subject to. 2. is also known as a surety or guarantor. in finance. criticized b/c contract between 2 parties creates enforceable right in a third o Recission of the assumption agreement  HELP? WHAT DOES THIS NOTE SAY?! o Break in the Chain  Sometimes the sales include many parties.JMR_RealEstate Circular logic. The person or company that provides this promise.  Impairing the lender‟s right to realize on the security of the mortgage  Modification of Obligation (modifying interest rate or terms of payment)  Majority  a total discharge if assumption o If subject to. o Upon mortgagor‟s (Buyer) transfer of real estate  mortgagor becomes a surety o Where does principal obligation lie?  With grantee  IF there is an assumption  With real estate  IF no assumption Morgagor is not released from primary liability unless expressly released by Mortgagee Surety is released from duties when the “deal changes” in way that impairs the surety’s position o Changes include Suretyship Defenses  Releasing the grantee from personal liability Mortgagor may be discharged based on  Releasing some or all of the real estate from the Mortgagee‟s actions that: mortgage Have made it less Have made it more  If mortgagee releases all of the real likely Grantee or difficult for estate land will satisfy Mortgagor to assert o Minority – released to extend of debt recourse against value of land released Grantee and land o Majority – mortgagor is completely discharged  If only a portion of real estate released  Mortgagor discharged to extend security now inadequate to cover debt. is a promise by one party (the guarantor) to assume responsibility for the debt obligation of a borrower if that borrower defaults. A surety or guarantee. discharge to exent of value of land at time of extension Page 11 of 31  - .E) will have assumed nothing also. Suretyship Defenses Transfer-Created Suretyship o Suretyship: the obligation of a person to answer for the debt of another. if it is found that B didn‟t actually assume anything then the latter parties (C.

but before the modification is made  3) obtain consent after the modification is made Restrictions on Transfer by the Mortgagor 1. o Used mainly to protect against impairment of mortgage security by a debtor who incurs a junior mortgage debt and thus reduced his or her economic stake in the real estate b) Increased-Interest-on-transfer-clauses Authorizes the lender to increase or adjust the mortgage interest rate in the event of a transfer by the mortgagor o Unlike due on sale clause it does not confer an absolute right to acceleate the mortgage debt upon transfer o Only if transferee fails to pay the increased payments  default + acceleration can occur c) Installment Land Contract Prohibitions on Transfer Prohibits assignment by the vendee w/out permission. but not bound by any disadvantageous ones o How can mortgagees avoid the suretyship defense?  1) “survival clause/waiver of defenses clause” – clause that preserves  2) obtain the mortgagor‟s consent to the modification after the mortgage is entered into. The Due-on Clauses Due On Sale Clause – mortgage provision that affords the mortgagee the right to accelerate the mortgage debt and foreclose if the mortgaged real estate is transferred without the mortgagee‟s consent a) Due-on-Encumbrance Restrictions Alternative to due on sale clause. Mortgagor) Facts: Bank contracted with Grantee to alter the terms of the note and then sought to hold them to the modified terms Issue: Can a lender contract with purchaser of a mortgaged property to alter the terms then hold the mortgagor to the new terms? Rule: A lender/mortgagee cannot contract with a vendee of mortgaged property to alter the terms of the note and then hold the mortgagor to the new terms of the note o Mortgagor = surety Notes o Extent of the discharge  After a “subject to” transfer.JMR_RealEstate Restatement  discharge only to extent time extension would otherwise cause loss 3. an increase in the interest rate w/out grantor‟s consent discharges the grantor to the extent of the value of the property  After an assumption totally discharged o Effect of modifications and time extensions on the mortgagor  Mortgagor is entitled to any advantageous modifications. violation = default and might result in vendor termination of the contract o Different from due on sale b/c that would at most trigger an acceleration of the mortgage debt Page 12 of 31  - B. Arena (Mortgagee v. - - - - . This type of clause authorizes the lender to accelerate the debt if the mortgagor “further encumbers” the real estate. First Federal Savings and Loan Ass’n of Gary v.

but also broader than that. breach of contract lawyer should avoid assisting or advising such a transfer C. Transfer of the Mortgagee’s Interest Secondary Sale (Secondary Mortgage Market) - One Lender sells/assigns to another Lender "Investor" - Secondary market transactions generally fall into four categories o 1. commonly waiver is given in exchange for “assumption fee”  Concealment of transfers – no duty for borrower to disclose to the lender that a transfer is taking place.  Concealment by lawyers – ethical implications of concealment. HUD. even a short-term lease or a grant of an easement or other limited interest in the land would suffice to trigger the lender‟s right to accelerate (1) Judicial and Legislative Response o No court held that a due-on-sale clause was per se unlawful o Clause was deemed per se reasonable unless the borrower could show that the lender had engaged in unconscionable conduct  States imposed legislative limitations on due-on-sale clauses  1976 – Federal legislation for due-on-sale clauses  1982 federal preemption of state laws due-on-sale clauses  Make such clauses generally enforceable o Lenders covered: all federal banks. inter vivos to certain relatives  Leases for three years or less with no option to purchase  Less than 5 dwelling units  Waivers by Lenders – Lenders can and frequently do waive their right to accelerate. its preemption does apply o Transfers in Which Due-on-Sale Enforcement Is Prohibited: several types of transfers that may not be used as the basis for due-on-sale acceleration  Creation of junior mortgages  Transfers incident to divorce  At death.JMR_RealEstate d) Events Triggering Acceleration Sale. Of Mort Page 13 of 31 . etc. doesn‟t apply to private banks o Loans covered: not limited to residential loans o Installment Land Contracts: doesn‟t specifically mention them. Outright sale to an investor who will hold the mortgage in its portfolio  MR  ME  Investor Note and Mortgage Endorsement of Note Ass.

not usually “pass-throughs” but instead represent a variety of combinations of principal and interest payments which can be covered by the borrowers on the underlying loans. Sale of mortgage-backed pass-through securities  MR  ME  Issuer  Inv1. holder of a junior mortgage or junior lien. Partial Assignments (participations) sold to multiple investors  MR  ME  Investor  Inv1. Inv2. reconveyance  Statutory penalties for lender that fails to provide such a document  Usually.  Commercial banks and savings banks often engage in this sort of transactions as a way of diversifying their portfolios and reducing risk o 3. Inv2. Inv3 Note and Mortgage Endorsement of note Ass. and collateralized by the mortgage or mortgagees. Sale of multiclass mortgage-backed securities  MR  ME Issuer  Inv1. but sells partial interests to other investors. even people holding easements o It doesn’t extinguish the mortgage but instead assigns both the obligation and the mortgage to the payor - Page 14 of 31 . Inv3 Guaranty  Investors purchase bonds or other securities. Payments are “pass-throughs” corresponding to pro rate payments on the underlying mortgages o 4. Inv2. only a complete payoff will extinguish a mortgage  Sometimes there is a “partial release clause”  Examples of those not primarily responsible who pay off mortgages  Original mortgagor who has transferred the land subject or w/ an assumption.JMR_RealEstate  May involve single large mortgage. Inv3 Sales of multiple classes of securities  Securities are widely sold and traded in the capital markets. Of Mort Sale of Participations  Investor retains a portion of ownership of the note and mortgage. discharge. wholesale lenders/securities issuers and securities investors D. satisfaction-piece. or pool of smaller mortgages o 2. issued by the secondary market investor. o Often major Wall Street Investment Banks o Low interest rates so could investments  Partially led to mortgage collapse Residential mortgage industry restructured into three components: mortgage brokers. Discharge of the Debt and Mortgage o Paid off by either “primarily responsible” or “others”  Typically mortgagor is “primarily responsible”  If the real estate is sold. the grantee becomes primarily responsible  Need a document discharged the mortgage  Different names: release. tentant under a subordinate lease.

promissory note won‟t be good enough. since no lender ever has a duty to accept a prepayment unless mortgage/note allows prepayment  Many charge a “prepayment penalty” (interest penalty?) 1.  Request must be made for good cause  Mortgagee who fails to disclose w/in certain time after such a request is liable for damages o Prepayment – mortgagee has a common law right to refuse an early tender or “prepayment” of principal or interest  Unanticipated prepayment can result in greatly increased tax liability  Sometimes include “lock-out” mortgage provisions that prohibit prepayment for a fixed period of time  Perfect Tender in Time Rule  “lock-out” clause is unnecessary. Teenform Associates  - Notes o Language permitting prepayment  Boilerplate phrases can allow prepayment “if payment of x dollars or more” o Types of Prepayment Clauses Page 15 of 31 . current interest rate. tender must also be unconditional o Payoff Letters  Statement w/ the amount owing.JMR_RealEstate Why would someone want to payoff?  gain control of the foreclosure process  Tender: needs to be cash or “good funds”. Westmark Commercial Mortgage Fund v. etc.

Weiner  o o o o o o o o o o o o o Page 16 of 31 . fees based on outstanding principal of the loan may be struck down Effect of acceleration on late fees Statutory limitations on late fees  Required that fee is calculated on amount of late installment not on principal Federal regulatory limitations on late fees  Prohibited late payment penalties on home loans in excess of 5% of the amount of the late installment Late fees and bankruptcy  Secured claim or not? 2. not as common in residential. Devlin v. All over the board What amount of late charge is excessive?  5-6% as in Westmark upheld. but more widely used in loans on commercial property  Many types of formulas including fixed %s. much larger will be struck down.  Acceleration by virtue of payment of casualty insurance or eminent domain proceeds  Acceleration under a due on sale clause Prepayment fees in bankruptcy – is the fee collectible in bankruptcy?  There has been a lot of Judicial scrutiny of yield maintenance clauses Statutory Limitations on residential prepayment fees  FHA/VA loans can be prepaid at anytime  Statutes vary Theories of Attack  Both late fees and default interest are subject to attack as they represent attempts to liquidate damages  Might violate usury statutes Unconscionability as a standard  UCC 2-302 Rationales for late fees and default interest  Administrative costs What default rate is excessive?  3-4% are okay.JMR_RealEstate Most allow prepayment but with a penalty. yield maintenance Attacking prepayment fees  Court will refuse to enforce only if it “shocks the conscience”  Occasionally a borrower will try to convince a state court that a prepayment fee is a form of excessive interest  argument almost always fails Prepayment caused by the mortgagee’s acceleration Sometimes prepayment occurs because lender accelerates the debt  Acceleration upon default  When the mortgage clause clearly applies the fee to prepayments resulting from acceleration for default the courts will enforce it.

JMR_RealEstate Page 17 of 31 .

mortgagor is given a period of time by the court to pay the debt. Foreclosure Methods o Two methods of foreclosure. Notes o Definiteness of obligation  Needs to be definte enough to “put anyone interested in the inquiry upon a track to leading to discovery” o Non-monetary obligations  If it cannot be reduced to money equivalent it cannot be secured by a mortgage o Support Mortgages  Mortgages with financial support and promise of “love. Misc.JMR_RealEstate - Devlins convey land to Weiners in exchange for the payoff of a mortgage and three building options.  Available in every state and only type available in some  Half use “power of sale”  Strict foreclosure – foreclosure is in court. Failure to do so will result in the property besting in the mortgagee w/out sale  Constitutionality of strict foreclosure?  Other (new England based) Page 18 of 31 . primary is judicial foreclosure accompanied by judicial sale. affection. IV. but no judicial sale.000. all valued at $84.  This is a valid form of consideration. kindess” or other emotional stuff will only be enforced as to the former and not the latter.

Real Estate Finance Law - General rule is that lack of knowledge or notice of the subordinate interest of another person in the mortgaged land does not excuse a mortgagee from making such person a party in the suit o If excluded  not subject to the decree  Limitations on this Rule  Bona Fide Purchaser will take free of interest if it is equitable only  if there is an outstanding unrecorded interest. the lessee is not a „necessary‟ party in a judicial foreclosure proceeding  “pick and choose” states re which leases “live” or “die” 1. buyer at a foreclosure sale who doesn‟t know about it takes free and clear Page 19 of 31 .  Since the lessee is unaffected by the foreclosure. The purchaser at the sale obtains the mortgagor‟s interest and becomes the lessee‟s landlord.JMR_RealEstate o Entry w/out Process o Actions at Law for a Writ of Entry o Scire Facias A. the lessee and lease are unaffected by a foreclosure. Sometimes they are made a party just to ascertain the amount and terms of the senior lien o The Junior Lessee as a necessary party  Where a lease is senior to a mortgage. Judicial Foreclosure - o Judicial foreclosure required where there is a serious lien priority dispute o Needed if there is an „absolute deed‟ because those don‟t contain a power of sale Notes o Necessary-Proper Party Distinction  Foreclosure should terminate the rights of all interested parties who are “subject to” the mortgage  Give the foreclosure sale purchaser essentially the title to the land “as it stood at the time of the execution of the mortgage”  The reason judicial foreclosure does not terminate unjoined junior interests is constitutional o Impact of Foreclosure on Senior Interests  Senior liener is not a “necessary” party because he or she is not subject to or subordinate to the mortgage being foreclosed  Senior lienor‟s interest will not be terminated or otherwise prejudiced by the junior foreclosure  Is a senior a „proper‟ party?  A senior lienor may be brought in involuntarily for certain limited purposes.

o Sale under a first mortgage will terminate all junior interests. Issue: When a junior lienholder is omitted from a foreclosure action. with a resulting judicial sale  Redemption – juniors power to compel an assignment to him or her of the senior lien. Court may. it puts the junior lienor in no worse position and so is not prejudicial. may a subsequent strict foreclosure action terminate the lien Rule: When a junior lienholder is omitted from a foreclosure action. Basically Junior tenders payment owing on the senior lien “subrogated” to the senior mortgagee‟s rights  Rights of Foreclosure Purchaser  Redemption  Re-Foreclosure  Strict Foreclosure 2. notably junior mortgages. but doesn’t have to allow a right of redemption - Note o Strict Foreclosure  Most jxns only provide strict foreclosure if P establishes that he bough in good faith w/out knowledge of the outstanding interest and that its holder knew of the sale and permitted the P to buy without disclosing his or her own interest Page 20 of 31 . Citicorp v. foreclosing mortgagee a) The Omitted Party Problem - If a party is omitted.JMR_RealEstate o Policy: protect both the forclosing mortgagee and purchaser  Lis Pendens Doctrine – protects BFP. there interests are not terminated by that foreclosure o The foreclosure is void and their redemption rights are the same as before o Succeeds to the rights of the lender and to the rights of the owners  Rights of omitted owner: if omitted party is owner of the entire redemption interest the foreclosure sale is entirely void but the foreclosure purchaser stands as assignee  When the omitted owner redeems any further interests in the land are cut off  Rights of omitted lienor: junior lienor still has an equitable redemption right  Foreclosure – forecloses his or her own lien. a subsequent strict foreclosure action may terminate the lien Holding: Purchaser who purchases in good faith is entitled to file a complaint to force the junior lienor to redeem the first mortgage or lose its rights. Consequently. Junior Lienholder (D)     Facts: P held a 1st mortgage on property. P filed a strict foreclosure action to extinguish the lien. Pessin Holder of First Mortgage (P) v. Strict foreclosure exists to allow the purchaser to extinguish after-the-fact the lien of an omitted party. filed to join junior lienholder D in a foreclosure. a junior lienholder to save his interest must either buy at the sale or redeem.

binding all lienholders to the foreclosure. (P) help a mortgage. Page 21 of 31 .JMR_RealEstate  Citicorp follows a flexible „equitable‟ approach Equitable Redemption v. They assigned their interests to P who tried to redeem land. doctrine of laches Equitable redemption only exists until the interest is foreclosured Portland Mortgage Co. Creditors Protective Ass’n    Facts: Creditors Protective Ass‟n (D) held a junior lien on the property on which Portland Mortgage Co. v.     Facts: P brought a foreclosure action concerning real property. thus allowed their redemption rights o Main difference in this case and Portland interests in this case arose after foreclosure and thus lienholders bound by the foreclosure. In Portland they were not bound by the foreclosure and thus had no statutory right of redemption. only equitable. Equitable right = assignment of a revived first lien Pays balance owed on the first lien No specific time period. not absolute o D would acquire the senior mortgage as a protection of its interest Land Associates v. went forward without lienholders being joined. Issue: Can a junior lienor‟s redemption rights be extinguished by the party who purchases the property at foreclosure sale by paying off the debt for which the junior lien is security? Rule: One who purchases property at a foreclosure sale may extinguish a junior lienor’s right to redeem it by simply paying the debt for which the junior lien is security o Junior lienor has right to redemption. lower court held she had no statutory right of redemption Issue: does an assignee of lienholders have a statutory right of redemption if the assignors were not lienholders of record when the foreclosure commenced? Rule: An assignee of lienholders has a statutory right of redemption if the assignors were not lienholders of record when the foreclosure action was commenced Holding – foreclosure triggered lis pendens. Becker 4. but it was not made a party to the action to foreclosure the mortgage. Statutory Redemption Redeeming under statutory right = fee title to the property Pays price at original foreclosure sale Fixed time period Statutory redemption only begins after the interest is foreclosure – last chance for creditors to regain the property 3.

completion of the sale. or mortgagee o Not usually judicially supervised  Policy: Motgagee accomplishes the same purposes achieved by judicial foreclosure without the substantial additional burdens that entails  Purposes: terminate junior interests. prove sale purchaser with good title. existence of a BFP o Tender requirement  some jxns want mortgagor seeking injunctive relief to pay amount due on mortgage o One who seeks equity must do equity o Common Foreclosure Defects Page 22 of 31 - . Defects in the Exercise of Power of Sale Foreclosure Baskurt v. Generally Power of Sale Foreclosure: allowed in 60% of jxns o Notice  property is sold at public sale by public official. cheaper than judicial foreclosure o Title has been somewhat less reliable than that from judicial foreclosure 2.JMR_RealEstate B. third party. Beal (Trustee v. o Foreclosure was voidable  (void usually only when criminal activity/fraud) Notes o State court remedies to attack power of sale foreclosure  Three remedies available to challenge the validity of a power of sale foreclosure  1) injunction suit against a pending  2) suit in equity to set aside a sale  3) action for damages against the foreclosing mortgagee or trustee o Can be used by the mortgagor but also by those w/ junior interests  Availability of remedy depends on several factors  When defect is discovered. - Power of Sale Foreclosure 1. nature of the defect. Debtor) - - Facts: Mortgagor sought to set aside a foreclosure sale on her property after it was sold at less than 15% of the fair market value and the trustee failed to properly protect her interests by selling only as much of the property as necessary to pay off debt Issue: Can a foreclosure be set aside if the price was extremely disproportionate to the fair market value of the property? Rule: A foreclosure sale must be set aside if the price paid was grossly inadequate when compared to the fair market value of the property on the date of foreclosure and the proceedings of the sale were defective.

foregery. selling either too much or too little of the mortgage security Void-Voidable Distinction  Void – no title is passed (ex. generally favors selling in parcels  Most statues have handled this by statute   o o o o o o o o Page 23 of 31 . unless express consent Trustee Closely related to mortgagee-purchaser  Won‟t by itself invalidate a sale. fraud or unfairness to set it aside  Grossly inadequate standard – may invalidate when less than 20% of fair market value Sales by parcel or in bulk  need to adopt mode of sale most beneficial to the mortgagor.. but might result in closer scrutiny Inadequate foreclosure price  Most commonly raised. least effective  Conscience shocking test  Must be evidence of irregularity.JMR_RealEstate Challenge the right of the mortgagee to foreclose Due process challenges  Intentional and negligent chilled bidding. misconduct. invalid acceleration)  Voidable (most fall under this category)  Bare legal title passes to the sale purchaser. errors that don‟t prejudice the parties Who is a BFP?  Sale purchaser is unrelated to the mortgagee. improper place or time of sale. defective notice of sale. should still take title if  1) had no actual notice of the defects  2) Not on reasonable notice from recorded documents  3) defects are not such that a person attending the sale exercising reasonable care would have been aware of the defect  Mortgagee cannot be a BFP Trustee as fiduciary  Represents the interests of both mortgagor and mortgagee  Described as a common agent of both parties Trustee obligation to verify default  No affirmative duty to investigate and verify debt Trustee as Foreclosure Purchaser  May not purchase for the sale they conduct. subject to the rights of redemption of those injured by the defective exercise of the power of sale  Neither void nor voidable  Minor typographical errors.

the DoT is often used in the US. Thus. o Power of sale in mortgagee  Many states hold that if a mortgagee forecloses on a mortgage and purchases the property at the sale. the sale is voidable.  States allowing mortgagee to foreclose require they act in good faith and must use reasonable diligence to protect the interests of the mortgagor Page 24 of 31 .JMR_RealEstate o Chilled bidding: Irregular conduct by a mortgagee or trustee that suppresses bidding is often characterized as “chilled bidding” In Re Edry - Notes o Bankruptcy court and state law  Bankruptcy court is used by debtors to attack foreclosure proceedings under the hope that the court will be sympathetic to the debtor.

o Trustee or mortgage liability to foreclosure purchaser  Generally foreclose purchaser takes a property subject to prior liens and interests accrued prior to the sale.000 .000 .JMR_RealEstate o Damages for wrongful foreclosure  If foreclosure has defect but property was purchased by BFP. if note is a forgery  no valid underlying obligation  Makes it void  Need to always first look at if “VALID UNDERLYING OBLIGATION” Defects Making Sales Void Mortgage was a forgery Debt never existed Mortgagee did not hold debt Defects Making Sales voidable Minor errors in publication of notice Chilled bidding Reduces bidders Bidding by trustee (in some states) Breach of Fiduciary Duty of Good Faith Self-dealing Improper time or place Might not provide proper notice Gross Inadequacy of Price Not enough in and of itself Debt was not yet due Debt has been paid Problem . suit to set aside  Generally mortgagor may chose to recover the property or bring an action for full damages if mortgagee incorrectly forecloses. mortgagor may commence an action against mortgagee for damages:  The difference between the market value of the property and the aggregate amount of liens thereon as the date of sale. o Damages for attempted wrongful disclosure  Some states allow an action for “attempted wrongful foreclosure” but many are reluctant to extent liability in an area where damages are speculative and subject to abuse.3rd Mortgage $3. o Suits for damages by others  Third party may bring action for deceit but may not bring action if there was conspiracy between mortgagee and trustee to ensure mortgagee would be purchaser of property.FMV = $20. o Action for damages v. or  The value of the mortgagor‟s equity in the property at the time of the sale.2nd Mortgage $5.000 . o Need a valid underlying obligation.1st Mortgage $10.000 Page 25 of 31 .  Mortgagor may commence an action to recover the property and for damages resulting from the wrongful behavior of the mortgagee.

Reacquisition of Title by Mortgagor and Related Issues Redemption is used to allow the defaulting mortgagor a final opportunity to regain his property. Presumption Statutes  Like WA several states have presumption statutes. 1. Mortgagor) Page 26 of 31 . Municipal Authority of Tacoma Facts: D appealed grant of Old Stone Banks motion for summary judgment quiting title of land to Glidden and sold without realizing that junior lienholders ahd not been given proper notice of sale upon the debtors default on debts securied by the property Issue: Is the degreed to which a purported BFP must inquire into foreclosure process a question of fact? Rule: yes. af few of these statutes deal only with notice requirements and not other aspects that might be carried out improperly  Conclusive presumption for BFPs – Notices Only – incluse of appropriate recitals creates a conclusive presumption in favor of BFPs but this presumption extends only to notice requirements for sale  Conclusive presumption for BFPs – all aspects of foreclosure – WA statute is good example of this  Trys to protect BFP from notice and other procedural defects in the foreclosure process o WA statute was amended after Glidden  2. Intentional omission of junior parties in a power of sale foreclosure  Can a junior lease by kept alive in the power of sale context by intentionally not giving them statutory required notice? C. trying to enhance the finality of power of sale foreclosure and the marketability of titles they produce o Three general categories  Rebuttable presumptions: contains neither conclusive presumption language nor any specific protection for BFPs.JMR_RealEstate o 2nd Mortgage is foreclosed o Mortgagee 2 purchases property for $4000 3. It holds up the alienation of the property after foreclosure and is thus disfavored by mortgagees. v Currie (Mortgagee v.  Glidden v. Old Republic Insurance Co. the degree to which a purported BFP must inquire into flaws in the foreclosure process is a question of fact which must be determined from an analysis of the circumstance s in each particular case Holding:    Notes  - 1. The government insists upon redemption rights when it is a junior lienholder.

preempting the lender‟s assignee Old Republic to claim that the mortgage had been revived. warranty obligation still exists to produce the property - Notes o Moral Issues  Intuitive notion of fairness – this person should not be able to profit by his or her violation of an obligation o Reacquisition by “non-recourse” mortgagor or subsequent grantee Page 27 of 31 . the junior mortgages are revived as liens on the property o Three theories holding reacquisition revives mortgage  1) payment theory: when the mortgagor purchases the property at the sale. Issue: if the mortgagor is the purchaser at a foreclosure sale or subsequently reacquires the property. the mortgagor is in effect paying the first mortgage and the second mortgage moves into first position  Mortgagor could profit by its own wrong in failing to pay when $$ due  2) Covenant defend title theory – second mortgage that is revived usually contains a warranty that the mortgagor agrees that he will defend the title against all lawful claims  Permitting 1st foreclosure of 1st mortgage is a breach of warranty to defend the title  3) warranty of title theory – based upon warranty of title contained in the 2nd mortgage.JMR_RealEstate    Facts: D. are the junior mortgages revived as liens on the property? Rule: If the mortgagor is the purchaser at a foreclosure sale or subsequently reacquires the property. who had filed for bankruptcy and thereby lost his home through foreclosure. Mortgagor has warranted that the mortgaged premises shall be security for the debt and that the mortgagor will produce the property if the debt is not paid  “after-acquired” title doctrine/equitable remedy o Inures to the benefit of the mortgagee o Even if personal liability is extinguished. later reacquired the same property.

The feds appeal. o Mortgagor will usually have the right to possession  Some states only available after power of sale foreclosure. Inc. with funds from the feds (post WWII). the redemption amount is normally tied to the foreclosure sale price rather than to the mortgage debt. others only after judicial foreclosure  Three approaches o Strict Priority or Ordered Redemption o Scramble Method  No priority order in which redemptions may be made from the purchaser. each pays the one before it and then they have no further redemption rights 1. federal law preempts Page 28 of 31 . the mortgagor agrees to the satisfaction of that obligation  Assuming grantee is still in the position to be reacquired against. The housing complex defaults. which grants a 1-year period of redemption.  -   - Notes o No statutory redemption under Federal Foreclosure Acts  Federal government views statutory redemption as contrary to its interest as a mortgagee  no rights of redemption under several federal acts  Policy = gov doesn‟t want to hold onto properties/mortgages for long periods of time o Federal government as junior lienor  US. Issue: Do state redemption statutes apply when the Federal Housing Authority forecloses on a mortgage that it guaranteed? Rule: The court held that FHA-insured mortgages are foreclosed under federal law. Stadium Apartments. but the district judge applies Idaho law. gets 1 year from date of sale within which to redeem  If state law isn‟t as generous. Mortgages contract to waive redemption rights. by statute. preempting any state redemption provisions.  United States v. The foreclosure happens.JMR_RealEstate Even where the mortgage obligation is completely non-recourse. as is the case with respect to equitable redemption. when the holder of a junior interest purchases at a senior foreclosure sale there is no revival of other junior interests  Valid purchase cuts off rights both the holder of the equity of redemption and other junior interests D. Facts: Some housing gets built in Idaho. Statutory Redemption Under statutory redemption. as for “subject to” grantee there is strong policy that they are also still subject to the liens otherwise there might be “unjust enrichment” o Mortgagor reacquisition from a BFP  There are good reasons to allow the mortgagor to reacquire title from a BFP free and clear of foreclosed interests o Acquisition of title by junior interest holders  Generally.

during the period giving the mortgagor sole redemption rights Notes o 1. E. Assignee of mortgagor as redeeming party  Generally the Mortgagor‟s Statutory right of redemption is assignable. if deficiency remains force on the real estate for the balance  (2) forceclose on the property first and if the proceeds are insufficient to satisfy the mortgage obligations obtain a deficiency judgment  Some states make you “elect” which option. Lien revival after statutory redemption  Courts take a variety of approachs to lien revival  Many allow for revival when the mortgagor or her successor Redeems. attempted to redeem property already redeemed by the mortgagor‟s assignee Issue: may a junior lienholder redeem property. o Power of Sale Foreclosures  “security first” principle  Power of sale is a condition precedent to a subsequent action at law for a deficiency o “Fair Value” legislation   Designed to deal with depression conditions  WA does have these– applies only to judicial foreclosures o Appraisal Statutes Page 29 of 31 . not going to get reimbursed for improvements. Anti-Deficiency Legislation and Related Problems o If Mortgage goes into default and the obligation is accelerated there are only two options  (1) obtain a judgment on the personal obligation and enforce it by levying upon any of the mortgagor‟s property and. Redemption by junior lienor  Other junior liens generally do not survive if another junior lienor redeems.    Farmers Production Credit Association v. like CA. foreclosed upon by the senior lienholder during the period giving the mortgagor sole redemption rights? Rule: a junior lienholder may not redeem property foreclosed upon by the senior lienholder. goes against policy of redemption statute 2. do not allow for revival of junior lienors o 2. some states leave both available - Limitations of Deficiency Judgments o Many states impose strict notice requirements and time limits on the mortgagee o “One Action” rules  Mortgagee‟s only remedy on default is foreclosure and must obtain any deficiency judgment incident to the foreclosure proceeding. some states. McFarland Facts: junior lienholder FPC. Jurisdictions vary as to whether junior liens revive against the redeeming assignee.JMR_RealEstate o Improvements by purchaser during the redemption period  Generally. o 3.

JMR_RealEstate  Requires the court or the person conducting the foreclosure sale to appoint an appraiser who determines the value of the property - California Anti-Deficiency Regulatory Scheme o more complex and pervasive than any other jxn  In states with anti-deficiency laws.” basically virtually all California homeowners are protected against deficiency judgments  Loans are „non-recouse‟. the mortgagor may have incentive to “overpay” (or buy “more house than mortgagor can afford. LIM (purchase money creditor v. cannot waive the protections provided in California‟s Code of Civil Procedure § 580b against deficiency judgments. the Lims waived the protection of 580b against deficiency judgments.” hoping to refinance if prices go up). mortgagors are not personally liable  Many lose this protection when they refinance 2. thus creating too much leverage for the borrower. Issue: Rule: A purchaser. . LTD v. etc. e. Talbott v. California. after defaulting in a purchase-money secured land transaction.. 1. Defaulted again and P filed suit on the obligations it was owed. purchase money debtor) Facts: Lims defaulted on obligations secured by a deed of trust held by a bank and be a deed of trust held by Deberard from whom they had purchased a shopping center and paid a large down payment. and not to guarantors of that obligation.  Opponents argue because mortgagor can “walk away” from mortgage without personal liability.g. and  Anti-deficiency rules create meaningful incentive for lender to accept reasonable modification terms. Hustwit Rule: The protection of anti-deficiency statutes applies only to actions for recovery of deficiency judgments on the principal obligation. They renogitated and executed a forebearance agreement. Deberard Properties. borrower not subject to a deficiency judgment after foreclosure has effective nonrecourse loan.  Proponents argue anti-deficiency rules allow borrowers to get a “clean start” after foreclosure. o 580a applies only to actions for recovery of deficiency judgments and not actions against a guarantor o Guarantor = removed from status and obligations of debtors/ trust arrangement Notes o Section 580a Fair Value Limitation Page 30 of 31 - . As part of the agreement.Notes o Waivers of 580b – virtually all post-default waivers of 580b are unenforceable o Refinancing purchase money home mortgages – 580b not only bars deficiency judgments in favor of vendor-mortgagees but also as to a “a deed of trust.

 Page 31 of 31 . they are not allowed to bring a deficiency judgment against the debtor. inexpensive. and efficient remedy.JMR_RealEstate If a junior lienor does not participate in the foreclosure process by bidding on the property. since it would derogate the goal of providing a “quick . guarantors cannot argue that the foreclosing party must give fair value for each parcel. o Impact of 580a on Power of Sale Foreclosures on Multiple parcels  If a mortgagee forecloses on multiple parcels of land.” o Actions for fraud and anti-deficiency legislation  Most courts are reluctant to allow anti-deficiency statutes to be a shield for fraud.

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