Lending

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					Chapter 9



            Mortgage &
              Note
    Promissory note concept
• Prom note secured by mortgage
• Creates personal obligation to
  repay debt: A Contractual Right
• ‘Bond’ Promise to pay
• Parts:
  – APR=Annual % Rate
  – Principal= Face amount
  – Penalties
  – Dates
  – Parties: B & L (“Maker”=Borrower)
   Promissory note concept
• Elements:
    • Writing
    • Terms of payment
    • Delivery & acceptance
• May contain the acceleration clause:
  – Balance is due & payable if default
• May have prepayment penalty
• Conveys an interest in property from the
  borrower to the lender:
  – Property Right
• Must be recorded                The Mortgage
• Hypothecation:
  – B keeps land,
  – pledges it &
  – pays interest on $ borrowed
• Elements:
  –   Writing
  –   ID of Parties & Property
  –   Intent of Parties
  –   Delivery
• Covenants:
     •   Pay all taxes & insurance
     •   Don’t demolish buildings
     •   Don’t sell interests
     •   Pay attorney’s fees if
         court action necessary

• Alienation:The Mortgage
  – All due & payable if
    property sold
  – “Due on sale”
• Condemnation:
  – If Taken $ pays loan balance
• New Loan:           Types of Transfers
     • Old loan paid & borrower is released
     • Satisfaction: Mortgage is Discharged fm Records
        – Partial Release: e.g., sub-dividing land
     • Noted on Margin: Page Record
• Subject to: Buyer’s title s.t. mortgage:
     • Seller responsible
     • Buyer could lose property, however
• Assumption:
     • Both buyer & seller obligated
     • Best protection for lender
• Novation:
     • Assumed but lender releases the seller
            Debt Priorities
• 1st Mortgage: 1st Rights ... Paid first
• Subordination: Order of Priority: > Risk
  – Senior can elect to be Subordinated.
     • e.g., Developer: Let’s bank’s loan be senior
• Chattel Liens (e.g., Loan on Trailer)
  – Mortgage on Chattel Recorded
  – Protects Lien holder
     • Otherwise Landowner sells them as fixtures
     • Lien holder’s interest can be cut off
     Foreclosures
• Process:
   – Property sold & $ Pays to Loan Balance

• Equity Right of Redemption:
   – Borrower can ‘buy back’ property even after foreclosure
     has begun (one year)

• Right of foreclosure:Lender(L) can foreclose
  (Cut off) Borrower’s(B)right to redeem

• Title theory: L holds title

• Lien theory: B has title (Iowa)
    Foreclosures
• Last resort: Few Mortgages are Foreclosed
• Judicial supervised sale: (Costlier)
     • B misses payments (or other problems)
  – Title search done
  – L Files Lawsuit (Lis Pendens filed)
  – Junior liens are eliminated
     • Can file for “surplus money action”
     • Or can pay delinquent payments
  – L asks Court to foreclose
     • B’s Equity Right of redemption ends w/all B’s Interests
  – Sell property at public auction.. $ to balance
              Foreclosures
• Public Auction:
  –   B can pay judgement up to last minute before sale
  –   Lender can bid if no bids> loan balance
  –   Everyone but L pays Cash
  –   Buyer receives sheriff’s deed ... conveys B’s title
• Statutory redemption:
  – B buys house at the sale
       • Juniors are not cut off
       • B can repurchase even after sale

• Deficiency judgement:
  – $ Owed after foreclosure
• Deed in Lieu of Foreclosure:
  – B deeds the property over to L
       • no deficiency
           Foreclosures
• Strict Foreclosure: Faster & Cheaper
  – L Files Lawsuit: B must act or lose rights
  – B has time to sell or to pay up
  – No judicial sale ... no deficiency judgement
• Entry & Detainer (Possession): Small Claims
  – Non judicial
  – L gives notice to B that L wants property
  – B moves out ... Witnessed & Recorded
• Power of Sale: Clause to sell w/o foreclosure
  Miscellaneous
• Estoppel Certificate:
   – L tells you loan balance and rate
• Installment Contracts:
  –   Foreclosure is easier in Iowa compared to mortgage
  –   B is served a notice to cure default
  –   Seller can get property back in 30-60 days
  –   No right of redemption for B in Iowa

				
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posted:8/18/2012
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