- When default, mortgagee has right to “accelerate”, making the entire debt due and payable.
– Foreclosure sale proceeds used to pay off the debt and the surplus goes to subordinate lien holders and the mortgagor. Any deficiency can be obtained through a personal judgment against the mortgagor.
– Purchaser of foreclosed property is put in the shoes of the mortgagor at the time of execution of the mortgage being foreclosed. As such, junior liens/mortgages are wiped out and title is free and clear (if first mortgage is foreclosed). If the second mortgage is foreclosed, title is in fee subject to the first mortgage (purchaser should bid FMV less the amount of the senior lien).
– Sale Foreclosures
1. Judicial Proceeding
2. Power of Sale
Mortgagor cannot lose his or her equity of redemption unless there has been valid foreclosure: PROHIBITION AGAINST CLOGGING THE MORTGAGOR’S EQUITY OF REDEMPTION. Statutory redemption (permits mortgagor or junior lien holders to redeem) is given is some states for a fixed period after equity of redemption has been validly terminated through foreclosure.
– Tile, Lien, and Intermediate Theories of Mortgage Law
– Deed of Trust as a Mortgage: Conveyance of the realty to a third person (often the lender’s lawyer, employee, or subsidiary corporation) in trust to hold as security for payment of the debt to the lender-noteholder whose role is analogous to that of the mortgagee. In most states, foreclosure is through a power of sale (nonjudicial).
– Motrgage Substitutes and Clogging the Equity of Redemption:
– Note: A deed of trust holder has the same equity redemption as a mortgagee.
– Reconveyance to mortgagor after the underlying debt has been repaid.
– Installment land contracts: Vendor has no equity of redemption and can keep the land and all installments paid (maybe even collect on future installments) in the event of default.
All of these are considered pro-vendor, and many states statutes and judicial decisions have enhanced the rights of defaulted vendees.
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