1. Real Estate Law Mortgage Foreclosures Real Estate Law Mortgage Foreclosures

2. Termination of Mortgage Relationship Payment of Entire Mortgage Debt Generally made when property is sold or refinanced. Generally made when property is sold or refinanced. Transfer of Mortgage to a Third Party Mortgage does not have to be terminated if property conveyed to third party. Mortgage does not have to be terminated if property conveyed to third party. It can survive conveyance -- sale "subject to" Mortgage and Mortgage Assumption. It can survive conveyance -- sale "subject to" Mortgage and Mortgage Assumption.

3. Termination of Mortgage Relationship (cont’d) Sale Subject to Existing Mortgage Describes conveyance where third party accepts property "subject to" existing Mortgage. Describes conveyance where third party accepts property "subject to" existing Mortgage. Third party takes property subject to mortgage lien, but has no personal responsibility to pay obligation. Third party takes property subject to mortgage lien, but has no personal responsibility to pay obligation.

4. Termination of Mortgage Relationship (cont’d) Mortgage Assumption Grantee takes land encumbered by Mortgage and becomes personally liable for Mortgage debt. Grantee takes land encumbered by Mortgage and becomes personally liable for Mortgage debt. Note Note When a third party has assumed a Mortgage, the Mortgagor is still liable -- Mortgagor remains a surety - - a person equally liable with third party. Novation Novation A release which Mortgagor can obtain from Mortgagee when he conveys property to third party. It prevents Mortgagee from going after Mortgagor for deficiency

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

6. Foreclosure (cont’d) Prior to Foreclosure: Prior to Foreclosure: Mortgagor defaults. Mortgagor defaults. Mortgagee accelerates due date of all remaining monthly payments. Mortgagee accelerates due date of all remaining 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 terms (equitable redemption); Reinstating the loan under currently existing loan terms (equitable redemption); Entering into a loan modification agreement with the Mortgagor; Entering into a loan modification agreement with the Mortgagor; Giving Mortgagor a deed in lieu of foreclosure; or Giving Mortgagor a deed in lieu of foreclosure; or Filing for bankruptcy. Filing for bankruptcy.

7. Foreclosure (cont’d) Equitable Redemption Equitable Redemption Time between event of default and foreclosure. Time between event of default and foreclosure. Permits Borrower or any other person with interest in real estate to pay Mortgagee the amount due, plus costs, and debt will be reinstated. Permits Borrower or any other person with interest in real estate to pay Mortgagee the amount due, plus costs, and debt will be reinstated.

8. Foreclosure (cont’d) Types of Foreclosure: With Sales With Sales Judicial Foreclosure (e.g., Massachusetts) Judicial Foreclosure (e.g., Massachusetts) Nonjudicial Foreclosure (generally Deed of Trust jurisdictions) Nonjudicial Foreclosure (generally Deed of Trust jurisdictions) Without Sales Without Sales Strict Foreclosure Strict Foreclosure Entry Foreclosure Entry Foreclosure

9. Judicial Foreclosure Property pledged as security, sold by court order after Mortgagee gives sufficient public notice. Property pledged as security, sold by court order after Mortgagee gives sufficient public notice. Process: Process: 1. Mortgagee files a Foreclosure Complaint in the county trial court where property is located and a lis pendens in county registry of deeds. 2. Court orders property to be sold. 3. Public sale is advertised and held - real estate sold to highest bidder.

10. Nonjudicial Foreclosure Mortgagee authorizes Mortgagor to sell property after default at a public sale without court proceedings by inclusion of a Power of Sale clause in the loan document. Mortgagee authorizes Mortgagor to sell property after default at a public sale without court proceedings by inclusion of a Power of Sale clause in the loan document. Process: Process: 1. Mortgagee records Notice of Default in county registry of deeds to give public notice of intended sale. 2. Mortgagee must wait for a statutorily prescribed redemption period. 3. Mortgagee then publishes advertisements in local newspapers which state total amount due and date of public sale. (Sometimes, notices must also be posted on property in a conspicuous location.) 4. Public auction is held – real estate is sold to highest bidder.

11. Post Sale Procedures 1. Deed executed by public official conducting sale, BUT deed is subject to any rights of redemption. 2. If sale price exceeds debt, Mortgagor or junior Mortgagees, if any, receive excess after expenses of sale are paid. 3. If sale price is less than debt, Mortgagee may recover deficiency from Mortgagor. (Recoverable only if Mortgagor signed a promissory note.) 4. Sheriff's Deed - Delivered to Purchaser after foreclosure sale. 5. All liens recorded before Mortgage are not affected. All liens recorded after Mortgage are extinguished, except special notice required for federal tax liens.

12. Post Sale Procedures (cont’d) Statutory Redemption Time period after the foreclosure sale whereby Borrower can pay back debt plus costs to reinstate debt. Only permitted in some states. Time period after the foreclosure sale whereby Borrower can pay back debt plus costs to reinstate debt. Only permitted in some states. Occurs by payment made to public officer who held sale or another person designated by law of amount of foreclosure sale plus interest. Occurs by payment made to public officer who held sale or another person designated by law of amount of foreclosure sale plus interest. Mortgagor then holds land free and clear of mortgage and foreclosure sale AND any junior liens. Mortgagor then holds land free and clear of mortgage and foreclosure sale AND any junior liens. If NO redemption made, purchaser owns property free and clear. If NO redemption made, purchaser owns property free and clear.

13. Foreclosures Without Sale Strict Foreclosure Strict Foreclosure A court hearing determines the Mortgagee’s right to foreclose, after which the property is transferred to the Mortgagee. A court hearing determines the Mortgagee’s right to foreclose, after which the property is transferred to the Mortgagee. Entry Foreclosure Entry Foreclosure Mortgagee simply takes possession of the property and, after a stipulated time period, receives title to the property. Mortgagee simply takes possession of the property and, after a stipulated time period, receives title to the property. Strict Foreclosure and Entry Foreclosure are used in only a few jurisdictions. Strict Foreclosure and Entry Foreclosure are used in only a few jurisdictions.