Deck 41: Real Estate Mortgages

Question 1

Arthur and Bobbie Ten Hove faced bankruptcy and foreclosure on their home. Christopher Johns, a real estate agent, would arrange for Allen Banks, a house "flipper," to purchase homes on the brink of foreclosure at an inflated price. The homeowners would execute a second mortgage in favor of Banks amounting to the difference between the purchase price and the amount owed. Immediately after the sale the seller would repay the second mortgage given to Banks. Banks used this money to rehabilitate the house and then sell it for its then (much higher) market value. The sellers would lose any equity that had been built up in the home but would avoid the black mark of foreclosure on their credit records. The Ten Hoves had already begun the bankruptcy process therefore any sale of their home needed to be approved by the bankruptcy trustee. The trustee smelled something fishy in the proposed transaction and, after investigation, Banks and Johns were charged with and convicted of criminal fraud. Johns argued that the second mortgage by which Banks received the excess purchase funds was a valid document, duly recorded and binding on the sellers. Was Johns correct?

Answer 1

Legal Reasoning:
In U.S. v. Johns , 686 F.3 438 (2012), the district court determined  that there was not a valid mortgage between the Ten Hoves and Fledderman or Banks, and thus his statement regarding the second mortgage to the trustee could not have been true.The appellate court affirmed.Therefore, Johns was NOT correct.

Question 2

For what reasons may a person secure a loan by a mortgage?

Answer 2

Mortgage:
A mortgage can be referred to as the right on a real estate that is transferred as a security against a loan.
In this process the person who is accepting the security is referred to as the mortgagee and the person who giving the mortgage is termed as the mortgagor.
The reasons why a mortgagor will secure a loan with a mortgage are discussed as given below:
1. By securing a loan with a mortgage, the mortgagor can raise more money which otherwise is not possible.
2. The mortgage helps in raising capital for purchase of real property which otherwise is not offered.
3. A mortgage can be used to take any loan and secure that with a mortgage.
All these facts indicate why people secure loans using mortgages.

Question 3

John Ball executed a deed of trust on property he owned in favor of Washington Mutual Bank to secure a $52,000 loan. Some years later, he executed a second deed of trust to Washington Mutual Bank to secure a home equity line of credit for $154,000. After financial difficulty, Ball defaulted on the first loan, and the trustee sold the property. Washington Mutual Bank was the highest bidder. Ball claimed that since the same bank held both loans and purchased the property at foreclosure sale, only the first loan should be paid off, and Ball should receive any remaining funds. Was Ball entitled to the excess?

Answer 3

Deed of trust:
A deed of trust is created to transfer the property in the name of the trustee for the benefit of the creditor.
In this case, the excess amount should be paid to M.T bank because the bank had offered both the loans.
The purpose of deed of trust is to create a benefit for the creditor. Thus, by selling the estate, trustee should clear the first loan and then priority should be given to second loan for clearing.
Therefore, the excess money cannot be retained by the trustee.

Question 4

What duties does a mortgagor assume?

Question 5

Allan and Deborah Cormier found themselves underwater on a mortgage. Fair market value of the property was estimated at $75,000, but a mortgage of $94,000 was owed to American Home Mortgage Service (American). The Cormiers asked the court to force American to acknowledge the Cormiers' surrender of the property and allow "them to deduct from their... payment, on account of administrative expenses, the actual amounts they [were] incurring to insure and preserve that property." The Cormiers wanted American to take over the expenses of the property so they could devote that money to other expenses. Once the Cormiers decided to abandon the property, was American responsible to pick up the tab immediately?

Question 6

If two mortgages are executed on the same land, which has priority?

Question 7

Carl and Martha Traxler sold their 94-acre farm to Keith and Chastity Samuel for development of a residential subdivision. The Traxlers provided financing secured by a deed of trust. As the Samuels obtained buyers for various tracts of land, they requested partial releases from the deed of trust so that property could be transferred to buyers free and clear. The Traxlers generally cooperated. With respect to the sale of a tract to Darrel and Mellony Melson, no one asked the Traxlers for a partial release. Years later the Samuels fell behind on their payments. Four years after their purchase, the Melsons discovered that the deed of trust held by the Traxlers had not been released from their property. The Melsons asked the Traxlers for a partial release and were denied. Do the Melsons have a right to demand their tract be released from the Traxlers deed of trust?

Question 8

What rights does a mortgagor retain?

Question 9

Wanda Williams purchased a residence that was financed by SunTrust Bank. After she failed to make the monthly payments, the bank began foreclosure proceedings. After required notices were given, the bank purchased the property at the foreclosure sale on October 2. On October 11, Williams filed a petition in bankruptcy and sought to set aside the foreclosure sale. Did she still have any interest in the property? Was there sufficient interest for the court to set aside the sale?

Question 10

How may a mortgagor redeem property after it has been sold under a foreclosure sale

Question 11

Denaro owned property appraised at $750,000, which secured a loan of approximately $500,000. After Denaro filed for bankruptcy, the bank foreclosed. At a sheriff's sale with multiple parties bidding, the bank purchased the property for a bid of $401,000. Denaro filed a motion in court arguing that based on the appraisal report showing a fair market value of $750,000, the bank was satisfied in full. Discuss the rights of the parties depending on whether the state has a law regarding the sufficiency of the sale price at a foreclosure.

Question 12

What does it mean to "assume a mortgage"?

Question 13

Bierwirth executed a note and deed of trust to purchase a residence. The note and deed of trust were subsequently assigned to BAC Home Loans Servicing, LP (BAC). Bierwirth ceased making payments, and BAC instituted non-judicial foreclosure proceedings pursuant to the deed of trust. Bierwirth attempted to stop the foreclosure proceedings by filing suit. Was BAC permitted to foreclose on the deed of trust without suing under the original note?

Question 14

What is a mechanic's lien?

Question 15

How is a mortgage different from a debt?

Question 16

What government programs are available to assist people in obtaining a mortgage?

Question 17

Wilhelmina McEwan purchased a home on which she granted Ely Place, Ltd., a mortgage, which was recorded in a timely fashion. Ten years later, she leased the home to Catherine Lavery. The lease was not recorded. Ely Place thereafter assigned the mortgage to EiA Properties, LLC (EiA), and the assignment was recorded. Ultimately, McEwan defaulted on the payments, and EiA began court proceedings to foreclose on the mortgage. EiA was the high bidder at the court sale, but Lavery opposed EiA's motion for possession, alleging that EiA was bound by the terms of the lease to allow Lavery to continue to live in the home. Could EiA remove Lavery from the property?

Question 18

What formalities are necessary for a mortgage?