Each State is allowed its own foreclosure laws and procedures. This is why the differences in security devices are the foreclosure rights. We will talk about your state laws regarding foreclosure later in this course. The first thing we are going to look at is the title theory and the lien theory regarding foreclosure laws.
Two Types of State Law (Title Theory States and Lien Theory) - Each state is allowed to have its own real estate laws. Each state has its own foreclosure laws. Some states mainly protect the mortgagor/borrower while some states mainly protect the mortgagee/lender. The main division is between east and west.
Title Theory States - Title theory is mainly utilized in in the Western States. We will look at your state's laws later in this section.
Lender Receives Legal Title - Under title theory the lender receives title to the financed property at time that it funds the loan for the property. This goes clear back to the old English law to where the king owned title to all of the land and the subjects made payments to the king for use of the land.
Equitable Title - The borrower/owner gains what is called equitable title during term of loan.
Equitable Title - Equitable title is simply the right to receive legal title at some time in the future. This, of course would occur when the promissory note is paid off.
Title theory is utilized in most States. It is exclusively utilized in the Western States such as Oregon, California, Idaho, Nevada, and Washington. Under Title theory, the lender only has the right to place a lien on the financed property; a monetary encumbrance.
Those states in which mortgages are treated as passing legal title to the lender, with the borrower having equitable title. Typically title-theory states employ a deed of trust instrument rather than something called a mortgage. If the borrower pays the debt in full, then the lender reconveys the property to the borrower. Contrast with lien theory states and with hybrid theory states.
In a Title State, the lending institution holds title to the property in the name of the borrower through a Deed of Trust. In a Lien State, the deed stays with the borrower (mortgagor), and the lender (mortgagee) places a lien on the property using the mortgage instrument. Generally, foreclosure in Title States occurs through a non-judicial proceeding, while Lien States are conducted via judicial methods; it varies with each state.
States whose laws give a lien on property to secure debt; contrasted with title-theory states in which the lender becomes the title owner. In either case the borrower has the right to use and enjoy the property in the absence of default. In the event of default, lenders may foreclose
Lien Theory - The owner has full legal title regardless of the debt amount that is owed to the lender or lenders in the case of 2nd mortgages.
Lender Only has a Lien Right - When we say that a lender has a lien right, this means the lender has the right to foreclose on the financed property for failure to pay the promissory note as contracted. The owner/borrower fails to pay the contracted payments.
Now lets look at the bad side of a mortgage; foreclosure. This is when the mortgagor does not live up to the promissory note and doesn't pay as promised. The promissory note has been breached. Now the mortgagee looks to the security device (mortgage). The steps are as follows:
What is the court order called that directs the sheriff to sell real property to satisfy a judgment?
A) writ of execution
C) writ of attachment
D) security agreement
A defeasance clause in a mortgage:
A) requires that the balance be paid in full upon default of the loan
B) indicates that the borrower has the authority to pledge the collateral
C) stipulates that the borrower will be able to regain clear title after the mortgage is paid
D) requires that the borrower maintain the collateral
When an owner sells property and the terms of the transaction release him/her fully from liability for the existing mortgage, the owner performed what the mortgagee would regard as:
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