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Chapter 10Chapter 10

Charles J.Jacobus

Thomas E.Gillett

© 2008 by South-Western, Cengage Learning

Georgia Real Estate Georgia Real Estate An Introduction to the ProfessionAn Introduction to the Profession

Seventh EditionSeventh Edition

Chapter 10Chapter 10

Mortgages and Mortgages and NotesNotes

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Promissory NotePromissory Note

Contract between a borrower and lenderCreates the obligation

Negotiable instrument

In writing

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Promissory NotePromissory Note

Obligor, obligee

Simple Interest

Prepayment privilege or prepayment penalty

DefaultLate payment

penalty

Security

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MortgageMortgage

Hypothecation Borrower retains possession

Pledging Lender has possession

Mortgagor vs. Mortgagee

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Deed of TrustDeed of Trust

Parties to a Deed of TrustTrustor

Beneficiary

Trustee

Reconveyance

Default

Trustee

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Security DeedSecurity Deed

Conveys legal title to Conveys legal title to the lenderthe lender

Grantor vs. GranteeGrantor vs. Grantee

Security DeedSecurity Deed

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Provisions and ClausesProvisions and Clauses

Section 1Make payments on time

Section 2Payment 1st applied to interest

Does not have to accept partial payment

Section 3Section 3Escrow Account - RESPA

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Provisions and ClausesProvisions and Clauses

Section 4Covenant to pay taxes

Section 5Covenant to pay insurance

Section 6Occupancy within 60 days

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Provisions and ClausesProvisions and Clauses

Section 7Covenant of good repair

Reasonable entry

Section 8False statements on loan application

Section 10Mortgage Insurance

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Provisions and ClausesProvisions and Clauses

Section 18Alienation or due on sale

Section 19Equitable vs. statutory redemption

Section 22Acceleration clause

Lender as attorney in fact

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Provisions and ClausesProvisions and Clauses

Section 23Defeasance clause – cancels security instrument

Satisfaction of the Security DeedMarked satisfied and re-recorded

“Cancellation of Deed to Secure Debt”

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Foreclosure on a Security DeedForeclosure on a Security Deed

Notifies borrower of default

Demand Letter

Advertised for 4

consecutive weeks

Sold at auction 1st Tuesday of the month on courthouse steps

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Existing loan does not contain an alienation clause

Buyer takes no personal for the loan

Purchaser remains liable

““Subject to”Subject to”

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Buyer promises to pay the loanIn a default – Seller has recourse against the buyer

Assumption with a Release of Liability

Substitutes Buyer’s liability for the Seller’s

Novation

AssumptionAssumption

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EstoppelEstoppel

Certificate of Reduction

Estoppel CertificateBarred from taking a contrary position

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Debt PrioritiesDebt Priorities

First mortgage / Senior mortgage

Second mortgage / Junior mortgage

Subordination

Chattel liens

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The Foreclosure ProcessThe Foreclosure Process

Foreclosure: “cut off”

Delinquent Loan

Foreclosure RoutesJudicial foreclosure

Nonjudicial foreclosure

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Judicial ForeclosureJudicial Foreclosure

ProcedureTitle search

Lawsuit naming all defendants

Judgment

Notice of Lis Pendens

Public Auction

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Judicial ForeclosureJudicial Foreclosure

Equity of Redemption

Deficiency JudgmentReferee’s Deed / Sheriff’s Deed

Statutory RedemptionCertificate of Sale

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Strict ForeclosureStrict Foreclosure

Judicial Foreclosure without a saleNo statutory right of redemption

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Non-Judicial ForeclosureNon-Judicial Foreclosure

Notice of Default

Property is advertised

Public Auction

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Entry and Possession

Deed in lieu of Foreclosure

Voluntary act – friendly foreclosure

May not terminate rights of junior lien holders

Equitable Mortgage

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Overview of Mortgage Foreclosure

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Key TermsKey Terms

Acceleration clause

Beneficiary

Deed of Trust

Deficiency judgment

First mortgage

Foreclosure

Junior mortgage

Mortgage

Mortgagee

Mortgagor

Naked title

Power of sale

Promissory note

Reconveyance deed

Security deed

Subordination

Trustee

Trustor