Real Estate Law

Mortgage Foreclosures

Real Estate Law

Mortgage Foreclosures

Termination of MortgageTermination of MortgageRelationshipRelationship

Payment of Entire Mortgage DebtPayment of Entire Mortgage Debt Generally made when property is sold or Generally made when property is sold or

refinancedrefinanced..

Transfer of Mortgage to a Third PartyTransfer of Mortgage to a Third Party Mortgage does not have to be terminated if Mortgage does not have to be terminated if

property conveyed to third party. property conveyed to third party.

It can survive conveyance -- sale "subject to" It can survive conveyance -- sale "subject to" Mortgage and Mortgage Assumption.Mortgage and Mortgage Assumption.

Termination of MortgageTermination of MortgageRelationship (cont’d)Relationship (cont’d)

Sale Subject to Existing MortgageSale Subject to Existing Mortgage Describes conveyance where third party Describes conveyance where third party

accepts property "subject to" existing accepts property "subject to" existing Mortgage.Mortgage.

Third party takes property subject to mortgage Third party takes property subject to mortgage lien, but has lien, but has no personal responsibilityno personal responsibility to pay to pay obligation.obligation.

Termination of MortgageTermination of MortgageRelationship (cont’d)Relationship (cont’d)

Mortgage AssumptionMortgage Assumption Grantee takes land encumbered by Mortgage Grantee takes land encumbered by Mortgage

and becomes personally liable for Mortgage debt.and becomes personally liable for Mortgage debt.

NoteNote

When a third party has assumed a Mortgage, the When a third party has assumed a Mortgage, the Mortgagor is still liable -- Mortgagor remains a Mortgagor is still liable -- Mortgagor remains a surety -- a person equally liable with third party.surety -- a person equally liable with third party.

NovationNovation

A release which Mortgagor can obtain from A release which Mortgagor can obtain from Mortgagee when he conveys property to third Mortgagee when he conveys property to third party. It prevents Mortgagee from going after party. It prevents Mortgagee from going after Mortgagor for deficiencyMortgagor for deficiency

ForeclosureForeclosure

DefinitionDefinition

Legal process by which property pledged as Legal process by which property pledged as security in mortgage or trust deed is sold to security in mortgage or trust deed is sold to satisfy the debtsatisfy the debt..

Foreclosure (cont’d)Foreclosure (cont’d)

Prior to Foreclosure:Prior to Foreclosure: Mortgagor defaults.Mortgagor defaults. Mortgagee accelerates due date of all remaining Mortgagee accelerates due date of all remaining

monthly payments. monthly payments. Mortgagee makes a demand for payment.Mortgagee makes a demand for payment.

Mortgagor can avoid foreclosure by:Mortgagor can avoid foreclosure by: Reinstating the loan under currently existing loan Reinstating the loan under currently existing loan

terms (equitable redemption);terms (equitable redemption); Entering into a loan modification agreement with Entering into a loan modification agreement with

the Mortgagor;the Mortgagor; Giving Mortgagor a deed in lieu of foreclosure; orGiving Mortgagor a deed in lieu of foreclosure; or Filing for bankruptcy.Filing for bankruptcy.

Foreclosure (cont’d)Foreclosure (cont’d)

Equitable RedemptionEquitable Redemption

Time between event of default and Time between event of default and foreclosure. foreclosure.

Permits Permits Borrower or any other person with Borrower or any other person with interest in real estate to pay Mortgagee the interest in real estate to pay Mortgagee the amount due, plus costs, and debt will be amount due, plus costs, and debt will be reinstated. reinstated.

Foreclosure (cont’d)Foreclosure (cont’d)

Types of Foreclosure:Types of Foreclosure:

With SalesWith Sales Judicial Foreclosure (e.g., Massachusetts)Judicial Foreclosure (e.g., Massachusetts)

Nonjudicial Foreclosure (generally Deed Nonjudicial Foreclosure (generally Deed of Trust jurisdictions)of Trust jurisdictions)

Without SalesWithout Sales Strict ForeclosureStrict Foreclosure

Entry ForeclosureEntry Foreclosure

Judicial ForeclosureJudicial Foreclosure

Property pledged as security, sold Property pledged as security, sold by by court ordercourt order after Mortgagee gives after Mortgagee gives sufficient public notice. sufficient public notice.

Process: Process: 1.1. Mortgagee files a Foreclosure Complaint in the Mortgagee files a Foreclosure Complaint in the

county trial court where property is located and a lis county trial court where property is located and a lis pendens in county registry of deeds.pendens in county registry of deeds.

2.2. Court orders property to be sold.Court orders property to be sold.

3.3. Public sale is advertised and held - real estate sold Public sale is advertised and held - real estate sold to highest bidder.to highest bidder.

Nonjudicial ForeclosureNonjudicial Foreclosure

Mortgagee authorizes Mortgagor to sell Mortgagee authorizes Mortgagor to sell property after default at a public sale property after default at a public sale without without court proceedingscourt proceedings by inclusion of a by inclusion of a Power of Power of SaleSale clause in the loan document. clause in the loan document.

Process:Process:

1.1. Mortgagee records Notice of Default in county Mortgagee records Notice of Default in county registry of deeds to give public notice of intended registry of deeds to give public notice of intended sale.sale.

2.2. Mortgagee must wait for a statutorily prescribed Mortgagee must wait for a statutorily prescribed redemption period.redemption period.

3.3. Mortgagee then publishes advertisements in local Mortgagee then publishes advertisements in local newspapers which state total amount due and date of newspapers which state total amount due and date of public sale. (Sometimes, notices must also be posted public sale. (Sometimes, notices must also be posted on property in a conspicuous location.)on property in a conspicuous location.)

4.4. Public auction is held – real estate is sold to highest Public auction is held – real estate is sold to highest bidder.bidder.

Post Sale ProceduresPost Sale Procedures

1.1. Deed executed by public official conducting sale, BUT deed Deed executed by public official conducting sale, BUT deed is subject to any rights of redemption.is subject to any rights of redemption.

2.2.   If sale price exceeds debt, Mortgagor or junior Mortgagees, If sale price exceeds debt, Mortgagor or junior Mortgagees, if any, receive excess after expenses of sale are paid.if any, receive excess after expenses of sale are paid.

3.3. If sale price is less than debt, Mortgagee may recover If sale price is less than debt, Mortgagee may recover deficiency from Mortgagor. (Recoverable only if Mortgagor deficiency from Mortgagor. (Recoverable only if Mortgagor signed a promissory note.)signed a promissory note.)

4.4. Sheriff's Deed - Delivered to Purchaser after foreclosure Sheriff's Deed - Delivered to Purchaser after foreclosure sale. sale.

5.5. All liens recorded before Mortgage are not affected. All All liens recorded before Mortgage are not affected. All liens recorded after Mortgage are extinguished, except liens recorded after Mortgage are extinguished, except special notice required for federal tax liens.special notice required for federal tax liens.

Post Sale Procedures (cont’d)Post Sale Procedures (cont’d)

Statutory RedemptionStatutory Redemption Time period after the foreclosure sale whereby Time period after the foreclosure sale whereby

Borrower can pay back debt plus costs to reinstate Borrower can pay back debt plus costs to reinstate debt. Only permitted in some states.debt. Only permitted in some states.

Occurs by Occurs by payment made to public officer who held sale payment made to public officer who held sale or another person designated by law of amount of or another person designated by law of amount of foreclosure sale plus interestforeclosure sale plus interest. .

Mortgagor then holds land free and clear of mortgage Mortgagor then holds land free and clear of mortgage and foreclosure sale AND any junior liens. and foreclosure sale AND any junior liens.

If NO redemption made, purchaser owns property free If NO redemption made, purchaser owns property free and clear.and clear.

Foreclosures Without SaleForeclosures Without Sale

Strict ForeclosureStrict Foreclosure A court hearing determines the Mortgagee’s A court hearing determines the Mortgagee’s

right to foreclose, after which the property is right to foreclose, after which the property is transferred to the Mortgagee.transferred to the Mortgagee.

Entry ForeclosureEntry Foreclosure Mortgagee simply takes possession of the Mortgagee simply takes possession of the

property and, after a stipulated time period, property and, after a stipulated time period, receives title to the property.receives title to the property.

Strict Foreclosure and Entry Foreclosure are Strict Foreclosure and Entry Foreclosure are used in only a few jurisdictions.used in only a few jurisdictions.