CA Bar- Real Property- Breeden Attack Sheet (Barbri)

REAL PROPERTY (BREEDEN ATTACK SHEET) WHAT OWNERSHIP INTEREST IS INVOLVED? (INCLUDING RIGHTS & DUTIES) -------------------------------------------------------------------------------------------------------------------------------- PRESENTLY OWNED FSA (complete ownership of land/fully alienable/exception: FEE TAIL right of first refusal valid restraint) (not used/ replaced with FSA/passes only to lineal descendants) FSD (“to A for so long as”/ grantor keeps possibility of reverter) FSSCS (“to A but if X happens, grantor reserves right to reenter and retake”/ grantor has right of re-entry and power of termination) rd (lifetime ownership of land; measured by life of grantee or life of another [pur autre vie]/grantor holds reversion, if 3 party, they hold remainder/duty to maintain estate and not commit waste [see below]) VOLUNTARY WASTE (T’s negligent/intentional conduct causes damage to property; 4 exceptions (“PURGE”) (1) prior use [open mines] (2) reasonable repairs (3) grant (4) exploitation (quarry is property and only use is to exploit)) PERMISSIVE WASTE (neglect/failure to maintain) T’s responsibility includes “TRIM”: taxes; repairs(not replacement); insurance(no obligation to insure property, but future interest holder should consider); mortgage debt(pay interest payments but not principal) (TRIM limited to amount of rents/profits from land; if none, T limited to reasonable rental value of land; if no income and not using land, no obligations) AMELIORATIVE WASTE (T’s conduct substantially alters premises, usually for the best) LIFE ESTATE -------------------------------------------------------------------------------------------------------------------------------- PRESENTLY POSSESSED TENANCY FOR YEARS (fixed period; must specify beginning date and ending date; if over 1 year, must be in writing; no notice required to terminate) PERIODIC TENANCY (repeats until one party gives notice) CREATION ((1) By express agreement; (2) by implication[no length specified so presumed to periodic measured by rent payment]; (3) by operation of law [oral lease that violates SOF; holdover tenant; rent check accepted by landlord determines tenancy) TERMINATION (either party can terminate with proper notice; 2 criteria of proper notice: (1) enough time [one month notice if month-to-month but only 6 months if year-to-year] (2) effective date of end of period of tenancy) (CA requires 60 days notice for all) TENANCY AT WILL (either party can terminate at any time; court may imply periodic tenancy if proof of regular rent payments and no express tenancy at will agreement) (tenant wrongfully holds over; landlord can either sue to evict or impose new periodic tenancy [if annual residential lease, and payment is monthly, new period will be month to month; however, if annual commercial lease, period will be year to year, regardless of payment]; if notice of raised rent BEFORE expiration of lease, then landlord may ask for higher payment if tenant holdsover) TENANCY AT SUFFERANCE NO LEASE AGREEMENT (generally, tenancy at will created, which may become periodic tenancy based on payments) DUTIES AND RIGHTS OF TENANT DUTY TO PAY RENT and MAINTAIN PREMISES (ordinary repairs and not commit waste [applies even if lease is silent]/law of fixtures walks with waste as well/ see more below) ASSIGNMENT AND SUBLEASE RIGHTS (assignment is transfer of entire lease to assignee whereas sublease is transfer of less than entire amount; assignee has privity of estate with L; sublease has no privity with L; original T has privity of contract with L; L can sue anyone with privity of contract or privity of estate; nonassignment clauses not liked by courts and are strictly construed, prohibition of assignments does not auto prohibit subleases and vice versa) CONDEMNATION RIGHTS (when state takes property via eminent domain) (if partial: T still has to pay rent but is compensated for land taken) (if whole: no more rent due; tenant will share in compensation ONLY if he’s getting a good deal and would cost him much more for new place/ rent control example) DUTIES AND RIGHTS OF LANDLORD DUTY TO DELIVER POSSESSION (if not actual possession when lease begins, then breach) IMPLIED WARRANTY OF HABITABILITY (not under CL; ONLY residential property; if breach, T can move out and end lease OR stay and sue for damages) IMPLIED COVENANT OF QUIET ENJOYMENT (L promise not to interfere; included in all leases; 3 ways to breach: (1) total eviction; (2) partial eviction [L excludes T from portion/tenant can rd stay for free; or if 3 party with title retakes portion/ T can proportionately reduce rent]; (3) constructive eviction [L fails to provide obligated service AND failure makes property rd uninhabitable/must be L’s failure, not 3 party/must be substantial interference/T must abandon in reasonable time]) TORT LIABILITY (generally no duty on L for injuries sustained on premises during lease; EXCEPTIONS (“CLAPS”): (1) common areas; (2) latent defects rule [L must warn if knowledge or reason to know]; (3) assumption of repairs [if L makes repairs negligently, L is liable]; (4) public use exception [L must know or should know of major defects and that T will not fix and that public will be using premises]; (5) short term lease of furnished dwelling of less than 3 months [L liable regardless]) REMEDIES AGAINST TENANT BREACH (if T fails to pay rent, L can sue for damages and terminate lease and evict; if T abandons, L has 2 options: (1) accept offer of abandonment; or (2) relet premises, holding T liable for any deficiency; L must make reasonable effort to mitigate damages) -------------------------------------------------------------------------------------------------------------------------------- CONCURRENTLY OWNED ESTATES JOINT TENANCY (Requires 4 UNITIES “PITT”: (1) time (vested at same time); (2) title (same instrument); (3) interest (same kind and amount of interest); (4) possession (identical rights of possession); language has to be clear as in “jt with right of survivorship” or court presume TIC; JTs take automatically at death of JT; JT can always ask for partition; Severance occurs when any of 4 unities disturbed (cannot be severed by will; by sale on date valid contract signed; creditors sale on date of sale; no severance for lien theory mortgage) Tip: (“PITT” and Jolie are joint tenants because they are not married) TENANCY BY THE ENTIRETY TENANCY IN COMMON (Requires 4 UNITIES [“PITT”] PLUS MARRIAGE; right of survivorship but no right of partition; not severed by unilateral act of one of tenants; 4 WAYS TO TERMINATE: (1) death; (2) mutual written agreement; (3) divorce; (4) execution by JOINT creditor) (Requires ONLY unity of possession; presumption of courts in favor of TIC; any co-tenant can force partition and no right of survivorship) RIGHTS OF ALL CO-TENANTS ABOVE RIGHT OF POSSESSION (each T has right to possess whole of property) RIGHT OF ACCOUNTABILITY (General rule: no accounting required for share of profits between co-tenants; 4 EXCEPTIONS “SOLD”: (1) Share agreement; (2) Ouster [accounting required if rd one is keeping another off property or claiming exclusive possession]; (3) Lease of property by co-tenant to 3 party; (4) Depletion of natural resources) RIGHT OF CONTRIBUTION (right of co-tenant to force another co-tenant to pay their fair share of property expeditures, BUT depends on type of expenditure. Contribution required on mortgage payments [if singed by co-tenants], required on necessary repairs, required on all governmental imposed obligations [taxes, etc.], NOT REQUIRED for improvements or non-necessary repairs but may be recouped if property is sold or partitioned later) -------------------------------------------------------------------------------------------------------------------------------- GRANTOR’S FUTURE INTERESTS REVERSION (estate remaining when estate less than FSA is granted) POSSIBILITY OF REVERTER (in FSD) RIGHT OF RE-ENTRY (in FSSCS) GRANTEE’S FUTURE INTERESTS REMAINDERS (Future interest created in someone other than grantor upon end of prior estate) VESTED REMAINDER (Created in ascertained person AND not subject to condition precedent; certain to acquire) VESTED REMAINDER SUBJECT TO OPEN (Class gifts to allow for future births; class closes whenever any member can demand possession; members who die before testator are eliminated; members in womb at time of T’s death are included) COMPARE VESTED REMAINDER SUBJECT TO COMPLETE DIVESTMENT & CONTINGENT REMAINDER (VRSCD is subject to condition SUBSEQUENT whereas CR subject to condition PRECEDENT; look to the “comma rule” for help: if conditional language comes before (to B) then it is condition precedent and is a CR [VRSCD comes after “to be” and is condition subsequent]) EXECUTIVE INTERESTS (future interest that cuts short a preceding estate; 2 TYPES: springing (cuts short a reversion to original transferor/ex: to B for life then to C upon 25 birthday) and shifting (cuts short a transferee’s estate); call it a Vested Remainder Subject to Executory Interest. th 5 FUTURE INTERESTS RULES DOCTRINE OF MERGER (if one person owns two successive estates, they merge; example: A to B for life, remainder to C…C then conveys her remainder to B, the estates merge and B has FSA) RULE OF DESTRUCTIBILITY (Under CL, Contingent Remainder destroyed if still contingent at time proceeding estate ended; example:…and if B has reached age of 21, to B [but B is only 19 at time]; Today, rule abolished and estate would go back to grantor under reversion, leaving B with a springing executory interest) RULE IN SHELLY’S CASE (Was used if grantor wanted A to live on a property but did not trust him not to gamble it away…therefore would leave to A for life, then to A’s heirs; rule in Shelly actually didn’t allow this and gave A an FSA; rule abolished in most states; today, A would get a LE and A’s heirs a CR with a reversion for O in case A has no heirs) DOCTRINE OF WORTHIER TITLE (Grantor cannot give remainder to his own heirs; A to B for life, remainder to A’s heirs is not proper because A might still be alive at B’s death and a living person has no heirs; A would get a reversion instead) RULE AGAINST PERPETUITIES (RAP) (No interest valid unless it must vest within 21 years after the death of the measuring life; always applies to EI and CR and VRSO; RAP savings clauses allowed; Charity to charity exception; 3 BAR RULES to locate violation: (1) last person mentioned by proper name and all prior parties take; (2) next subsequent not mentioned by proper name take; (3) all additional parties lose and property reverts back to grantor or grantor’s heirs) -------------------------------------------------------------------------------------------------------------------------------- INCORPOREAL INTERESTS EASEMENTS BAR TIPS: (Tip 1: Most easements created with “PING” and terminated with “END CRAMP”; Tip 2: if no easement, you have license) EASEMENT IN APPURTENANT (must involve 2 pieces of land owned by 2 different persons: Dominant [land benefited by easement] and Servient [land burdened by easement]; benefit passes automatically with dominant estate even if not mentioned in conveyance; burden passes automatically with servient estate unless new owner is BFP without notice of easement [either actual, constructive, or inquiry]) EASEMENT IN GROSS (confers personal or financial advantage not related to use of land; ex: public utility easement; no two pieces of land; NOT transferable UNLESS for commercial purposes [not uncle bob’s right to swim in my pond]) AFFIRMATIVE EASEMENT (most common; entitles holder to make affirmative use of servient estate; “PING” creates: (1) by Prescription [same elements as adverse possession “HA NO ACE!”]; (2) by Implication [must have Previous Use and “CAR”: Continuous, Apparent, and Reasonably necessary); (3) by Necessity [right of way implied if grantor conveys portion of land with no way out- landlocked]; (4) by Grant (easement to endure for more than 1 year must be in writing, called deed of easement) NEGATIVE EASEMENT (entitles holder to prevent servient landowner from doing something he has a right to do; “LASS”: light, air, support, stream water from an artificial flow; has to be a writing signed by grantor; no automatic or implied) DUTIES AND RIGHTS OF EASEMENT OWNER (may only use easement for those activities reasonably contemplated at creation; a reasonable scope will be implied if not expressed by parties; NO change from family use to commercial use; servient estate can stop excessive use but NOT terminate easement; holder has right and duty to make repairs on easement but cannot substantially change the nature of the easement in the name of repairs) DUTIES AND RIGHTS OF SERVIENT ESTATE OWNER (may not use his property in way that interferes with holder rights; NO duty to maintain easement) TERMINATION OF EASEMENT (Remember “END CRAMP”: (1) Estoppel [holder says they are going to abandon and servient estate relies]; (2) Necessity [ending of necessity unless express grant]; (3) Destruction [destruction of servient land except thru willful conduct of servient owner]; (4) Condemnation [eminent domain]; (5) Release [written release given by holder to servient owner]; (6) Abandonment [requires physical action by holder to show intent never to use again, not mere nonuse]; (7) Merger [dominant and servient estate combine and easement extinguishes, no auto revival if properties later separated again]; (8)Prescription [servient owner can also use this method; “HA NO ACE!”]) COVENANTS DEFINE (Promise to do [affirmative covenant] or NOT do [restrictive] something related to land; unlike easement because it is not the grant of a property interest but a contractual limitation or promise regarding land) COMPARE WITH EQUITABLE SERVITUDE (Same elements involved; only differences is the remedy available; use covenant if you want $ damages; use equitable servitude if you want an injunction) DOES BURDEN RUN WITH THE LAND (Requires that you go “WITH NV”: (1) Writing [original promise in writing] (2) Intent [original parties intended covenant to run] (3) Touch and Concern Land [includes HOA and covenants not to compete] (4) Horizontal Privity [original parties must have shared a succession of estate, i.e., grantor to grantee, or mortgagor to mortgagee, or landlord to tenant/VERY HARD TO PROVE; A-B] (5) Vertical Privity [easy to prove, subsequent owner has to hold entire estate in land held by original party in order to be bound; A1-A2] (6) Notice [new burdened covenant holder must have had notice when he took property]) DOES BENEFIT RUN WITH THE LAND (Need same as burden EXCEPT Horizontal Privity and Notice) EQUITABLE SERVITUDE CREATION (Promise that equity will enforce against successors; no privity required; REQUIREMENTS are same as Covenant Burden without the privitys: writing, intent, touch and concern land, and notice) IMPLIED EQUITABLE SERVITUDE (aka NEGATIVE EQUITABLE SERVITUDE) (General rule: where a common plan exists, where one lot is restricted, a similar restriction is implied on the remaining land; all lots would have to vote to change; only defense is changed conditions, which is difficult to win) PROFIT (Right to go on land of another and take away a natural resource such as coal or timber; there is an implied easement; 2 types of profit: Profit in Appurtenant (2 pieces of land with 2 separate owners) AND Profit in Gross (unrelated to land/is assignable but only divisible where non-exclusive) LICENSE (mere privilege to enter someone’s land for specific purpose; no writing required; only the intention to create an easement is required to create a license; revocable at will of licensor UNLESS there is detrimental reliance) -------------------------------------------------------------------------------------------------------------------------------- RIGHTS IN LAND PARTY WALLS (wall built on property A and adjoining property B granted appurtenant easement to use wall for support; if wall on both property A and B, owned by both and promise to maintain or pay for wall runs with land) RIGHT TO LATERAL AND SUBJACENT SUPPORT (If land is improved by buildings and an adjacent landowner’s excavation causes that improved land to cave in, the excavator will be liable only if he acted negligently; if P can show that even if there were no buildings, that the land would have collapsed because of adjacent owner’s actions, the excavating landowner is strictly liable) RIGHTS TO WATER (3 types of water) WATERCOURSES (streams, rivers, and lakes) 2 methods for determining allocation of these waters: (1) RIPARIAN SYSTEM [if owners land touches the water, they have right to use the water with the land/owners are forbidden fro altering the natural flow of the water]; (2) PRIOR APPROPRIATION SYSTEM [water belongs initially to state, but right to divert and use an be acquired by individual/simply put, first in time, first in right; first party to use water gets it]) GROUNDWATER (surface owner entitled to make reasonable use of ground water as long as NOT wasteful) SURFACE WATERS (rainfall or seepage) (generally, landowner may change drainage or make any other changes on land to combat flow of surface water; however, some courts do not allow causing unnecessary harm to land of others) -------------------------------------------------------------------------------------------------------------------------------- FIXTURES GENERAL RULE (Fixtures become part of real property and cannot be removed by sellers or tenants; walks with waste doctrine) CREATION (If no express agreement regarding status of property, courts will look to the INTENT of the installer; court finds INTENT by asking does it “(at)TACH” to the property: (1) TRADE fixtures (2) degree of ATTACHMENT (3) general CUSTOM (4) degree of HARM to premises if remove; if item not a fixture, tenant must remove before vacating at end of lease) -------------------------------------------------------------------------------------------------------------------------------- ADVERSE POSSESSION CREATION (General rule: possession for a statutorily prescribed period of time can ripen into title if certain elements are met; The elements [Remember “HA NO ACE!”] (1) Hostile (2) rd Adverse (3) Notorious [goes with “open”] (4) Open [sufficiently apparent to put owner on notice] (5) Actual [must actually possess land to obtain title/leasing same land to 3 party is still actual possession AND land must be seamless and not separated by road] (6) Continuous (uninterrupted for statutory period/20 years at CL] (7) Exclusive) TACKING (adverse possession statutory period does not require continuous possession by same person; however, tacking is NOT allowed where there is an ouster) RESTRICTIONS DISABILITIES (“the 3 I’s”: Infancy, Incarceration, and Insanity) (if true owner suffers from these at time adverse possession begins, clock will not start until true owner is free of disability; if disability appeared some time after adverse possession begin, clock does not stop running) NO ADVERSE POSSESSION OF GOVERNMENT LAND NOT MARKETABLE TITLE (title acquired by adverse possession not marketable/court action needed to quiet title) -------------------------------------------------------------------------------------------------------------------------------- ANY LIMITATION ON SUCH OWNERSHIP? -------------------------------------------------------------------------------------------------------------------------------- PUBLIC LAND AND USE CONTROL EMINENT DOMAIN (5 Amendment requires both Due Process and just compensation prior to a TAKING; court is more concerned with “just compensation” than with whether it was for a public purpose; if partial taking, owner may recover severance damages reflecting decrease in FMV of remaining land; severe land restrictions may constitute a taking and entitle landowner(a lot of lee way here on behalf of government/ courts generally do not even ask if it was for a public purpose) th ZONING POWER (This is the power of the gov to divide land where certain uses are permitted or prohibited in order to protect established uses from the economic loss new uses might EXCEPTIONS TO ZONING ORDINANCES (EXCEPTIONS include: impose; usually done through local zoning ordinance; Limitations: Equal Protection clause protects against spot zoning and requires comprehensive training; if regulation destroys land’s economic value, it may be considered a taking [look to reasonableness of taking and weigh public/private interests involved]) (1) conditional use permits (2) granting of zoning variance[ show unnecessary hardship to owner and that the variance does not detriment public] (3) contract zoning (4) floating zones (5) planned unit development) -------------------------------------------------------------------------------------------------------------------------------- ARE THERE ANY LAND SALE CONTRACT ISSUES? -------------------------------------------------------------------------------------------------------------------------------- THE LAND CONTRACT (ESCROW PERIOD) FORMALITIES ((1) WRITING and SIGNED by seller [need 2 of 3 to create part performance and take out of SOF: possession, payment made, or substantial improvements] (2) must contain ESSENTIAL TERMS [land description/party ID/price/manner of payment] (3) PAROL EVIDENCE admissible to resolve latent ambiguities but not essential (4) if land contract wrong [98 acres instead of 100], buyer can get specific performance with prorated reduction in price) PROMISE TO PROVIDE MARKETABLE TITLE (1 of 2 implied promises in all land contracts; marketable title is free from lawsuits and threats of litigation; 3 circumstances render title unmarketable: (1) ADVERSE POSSESSION [even just a small part] (2) ENCUMBRANCES [easements and mortgages unless buyer has waived] (3) ZONING VIOLATIONS) PROMISE NOT TO MAKE FALSE STATEMENT OF MATERIAL FACT (1 of 2 implied promises in all land contracts; most states hold seller liable for failing to disclose latent material defects; general disclaimer[“as is”, etc.] will not relieve seller of liability from fraud; NO IMPLIED WARRANTY OF FITNESS OR HABITABILITY UNLESS PURCHASED NEW HOME FROM VENDOR/BUILDER) LOSS OF PARTY OR PROPERTY (RISK OF LOSS: DOCTRINE OF EQUITABLE CONVERSION [once contract signed, equity treats property as buyer’s land, and, therefore, BUYER BEARS RISK OF LOSS, even if seller has remained in possession and control of property]complete ownership of land/fully alienable/exception: right of first refusal valid restraint); DEATH OF PARTY before closing: Doctrine of Equitable Conversion also applies here [death of either party generally will NOT affect rights of parties to STILL ENFORCE CONTRACT]) -------------------------------------------------------------------------------------------------------------------------------- THE DEED (CLOSING PERIOD) 6 REQUIREMENTS (Remember “SID WID”: by agent; by messenger]) (1) Signed by grantor (2) Intent to transfer (3) Description of land (4) Writing (5) Identification of parties (6) Delivery [in person; by mail; DELIVERY (complete ownership of land/fully alienable/exception: right of first refusal valid restraint) 4 WAYS: (1) In person (2) By Mail (3) By Messenger (4) By Agent IF BY AGENT: (Delivery probably subject to condition precedent (death), then grantor has a LE and grantee has a VR. When death occurs, title passes on date first given to agent/Grantor can change mind and recover deed at any time as long as no contract) TEST: (If grantor retains control over deed, there is NO delivery; if grantee has deed, there is a rebuttable presumption that it has been delivered just as there is a rebuttable presumption if grantor has deed, delivery has not occurred) EXPRESS REJECTION: (defeats delivery) ORAL CONDITION UPON DELIVERY: (if delivered with oral condition, court will strike oral condition since not provable) 3 TYPES OF DEEDS QUIT CLAIM DEED (no covenants or promises) GENERAL WARRANTY DEED (6 COVENANTS; Remember “FACE SW”: (1) FURTHER ASSURANCES [grantor promises to do any future acts necessary to perfect title] (2) AGAINST ENCUMBRANCES [grantor promises there exist no physical or title encumbrances] (3) RIGHT TO CONVEY [grantor promises he has authority to convey] (4) QUIET ENJOYMENT [grantee’s possession won’t be disturbed by another party’s claim] (5) SEISIN [grantor promises he has the estate he is conveying] (6) WARRANTY [grantor agrees to defend against reasonable claims of rd title by 3 party]) STATUTORY SPECIAL WARRANTY DEED (contains only 2 PROMISES that grantor makes on BEHALF OF HIMSELF ONLY: (1) Promise that he has not conveyed to anyone else (2) promises that conveyance is free from any encumbrances from him) -------------------------------------------------------------------------------------------------------------------------------- RECORDING ACTS HOW GRANTEE RECORDS (Record deed in county where property located; Copy and index deed into either the Grantor-Grantee (and Grantee-Grantor) [alphabetical under last name of grantor (or grantee in the Grantee-Grantor index) index OR the Tract Index [index by lot and block number) will find all conveyances on one page; In Grantor-Grantee index: begin with name of grantor and check to see if grantor has already conveyed property to another, then follow same procedure for predecessors of grantor until you reach the root of the title; if deed cannot be found in title search [outside chain of title] then it is deemed not recorded in most states) HOW TO DO A TITLE SEARCH (In tract index: 3 MAJOR RECORDING ACTS (NOTICE statutes [last BFP/mortgagee has priority]; RACE-NOTICE statutes [first BFP/Mortgagee to record wins] RACE statutes [first person to record wins regardless of notice]) ONLY BFP [purchaser without notice paying a valuable consideration more than nominal but does not have to be FMV] and Mortgagees protected under “Notice” and “Race Notice” statutes) WHO IS PROTECTED? (General rule: buyer to find]) 3 FORMS OF NOTICE ((1)ACTUAL; (2) INQUIRY [if could have seen by inspecting premises/ex. Another is in possession]; (3) RECORD [deed was recorded properly and available for 3 CHAIN OF TITLE PROBLEMS ((1) SHELTER RULE [one who takes from BFP prevails against anyone BFP would have prevailed against] (2) WILD DEED [any disconnect or gap in deed record incapable of giving record notice] (3) ESTOPPEL BY DEED [one who conveys property that he doesn’t own is estopped from denying validity of that conveyance if he later acquires that property UNLESS grantor subsequently conveyed to BFP who will take) -------------------------------------------------------------------------------------------------------------------------------- MORTGAGES FORMALITIES (Two types: lien theory and title theory; recording statutes apply to mortgages) MORTGAGEE INTEREST TRANSFER 2 WAYS FOR MORTGAGE COMPANY TO TRANSFER INTEREST (1) Endorsing and delivering note to transferee (2) Executing a separate document of assignment; If note is endorsed and delivered, transferee accepting note is eligible to become a HOLDER IN DUE COURSE [means new holder takes note free of any PERSONAL DEFENSES that could have been raised against original ME such as lack of consideration, fraud in inducement, unconscionability, waiver, estoppel, etc.) DEFINE HOLDER IN DUE COURSE (Takes the mortgage of original ME free of any PERSONAL DEFENSES that could have been raised by property owner upon foreclosure such as lack of 4 consideration, fraud in inducement, unconscionability, waiver, or estoppel; HOWEVER, holder in due course still subject to REAL DEFENSES (Remember “MAD FIFI “) (1) Material Alteration defense (2) Duress (3) Fraud in factum [debtor thought he was signing credit application, not mortgage] (4) Incapacity (5) Illegality (6) Infancy (7) Insolvency) 5 CRITERIA FOR BEING HOLDER IN DUE COURSE (1) Note must be negotiable, made payable to named mortgagee (ME); (2) Original note must be indorsed, signed by named ME; (3) The original note must be delivered to the transferee. A photocopy is unacceptable; (4) The transferee must take the note in good faith without notice of any illegality; AND (5) The transferee must pay value for the note, meaning some amount that is more than nominal) SALE OF MORTGAGED PROPERTY SALE TO BFP (Cuts off mortgagee’s interests although BFP’s are rare with regards to mortgages since most are recorded) ASSUMES MORTGAGE (If Grantee “assumes the mortgage” he is personally liable BUT Grantor remains liable as well) SUBJECT TO MORTGAGE (Grantee who takes property “subject to mortgage” is not personally liable for mortgage; however, if mortgage recorded, it sticks with land and property could be foreclosed if someone doesn’t pay) FORECLOSURES FORMALITIES (Owner/Mortgagor entitled to possession until foreclosure; By judicial sale [CA also allows nonjudicial sale but not common]; Owner has right to redeem) DISTRIBUTION OF FUNDS (Look to priority of each mortgage, look to type of recording statute, then look to which mortgage is foreclosing; Foreclosure money is used to pay mortgage being foreclosed and any junior mortgages but senior mortgages remain with property and foreclosure buyer takes property subject to those mortgages; Junior mortgages can always go after original mortgagor for a deficiency judgment if sale did not raise enough funds to pay them; PURCHASE MONEY MORTGAGEES, such as owner financing, get SUPERPRIORITY)