1. Chapter 26 Credit, Mortgages, and Debtor’s Rights

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Credit
Credit: Occurs when one party makes a loan to another party
Debtor: The borrower in a credit transaction
Creditor: The lender in a credit transaction
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Unsecured Credit
Unsecured Credit: Credit that does not require any security to protect payment of the debt
Creditor relies on the debtor’s promise to repay the principal (plus interest) when it is due
Creditor may bring legal action if the debtor fails to make the payments
If the debtor is judgment proof, the creditor cannot collect
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Secured Credit
Secured credit: Credit that requires security that secures payment of the loan
Security interests may be taken in real, personal, intangible, other property
Collateral may be repossessed to recover the outstanding amount if the debtor fails to make payment
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5. Security Interests in Real Property
Mortgage: An arrangement where an owner of real property borrows money from a lender and pledges the real property as collateral to secure the repayment of the loan
Two-party instrument
Owner/debtor is the mortgagor
Creditor is the mortgagee
Real property is used as collateral
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6. Exhibit 26.2 - Mortgage on Real Estate
Loan of Funds
Owner-Debtor Mortgagor (Borrower)
Creditor Mortgagee (Lender)
Security Interest in Real Property
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7. Security Interests in Real Property
Note: An instrument that evidences a borrower’s debt to the lender
Deed of trust: An instrument that gives a creditor a security interest in the debtor’s real property that is pledged as collateral for a loan
Three-party instrument
Legal title of property placed with trustee until owner-debtor (trustor) pays creditor (beneficiary)
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8. Exhibit 26.3 - Note and Deed of Trust
Loan of Funds
Owner-Debtor Trustor (Borrower)
Creditor Beneficiary (Lender)
Security Interest in Real Property
Legal Title
If default, can perfect rights
Trustee
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9. Security Interests in Real Property
Recording Statute: A statute that requires a mortgage or deed of trust to be recorded in the county recorder’s office of the county in which the real property is located
Public record
Gives potential lenders, purchasers notice of claims against property
Nonrecordation does not affect legality of instrument or rights of parties
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10. Security Interests in Real Property
Foreclosure sale: A legal procedure by which a secured creditor causes the judicial sale of the secured real estate to pay a defaulted loan
Permitted by all states
Power of sale: A power stated in a mortgage or deed that permits foreclosure without court proceedings and sale of the property through an auction
Permitted by most states
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Case 26.1: Mortgages
Case
Old Republic National Title Insurance Company v. Fifth Third Bank
Web 2008 Ohio App. Lexis 4423 (2008)
Court of Appeals of Ohio
Issue
What is the priority of the lien and two mortgages on McCarthy’s house?
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12. Security Interests in Real Property
Deficiency Judgment: A judgment of a court that permits a secured lender to recover other property or income from a defaulting debtor if the collateral is insufficient to repay the unpaid loan
Antideficiency statute: A statute that prohibits deficiency judgments regarding certain types of mortgages, such as those on residential property
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13. Security Interests in Real Property
Right of redemption: A right that allows the mortgagor to redeem real property after default and before foreclosure
The mortgagor must pay the full amount of the debt incurred by the mortgagee because of the mortgagor’s default
Land sales contract: An arrangement in which the owner of real property sells property to a purchaser and extends credit to the purchaser
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14. Security Interests in Real Property
Mechanic’s liens on real property: A contractor’s, laborer’s, and material person’s statutory lien that makes the real property to which services or materials have been provided security for the payment of the services and materials
Subject to the debtor’s right of redemption
Lien release: A written document signed by a contractor, subcontractor, laborer, or material person, waiving his or her statutory lien against real property
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15. Surety and Guaranty Arrangements
Surety arrangement: An arrangement in which a third party promises to be primarily liable with the borrower for the payment of the borrower’s debt
Guaranty arrangement: An arrangement in which a third party promises to be secondarily liable for the payment of another’s debt
Defenses that principal debtor has against creditor may be made by surety or guarantor
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Collection Remedies
Writ of attachment: A prejudgment court order that permits the seizure of a debtor’s property while a lawsuit is pending
Writ of execution: A postjudgment court order that permits the seizure of the debtor’s property that is in the possession of the debtor
Writ of garnishment: A postjudgment court order that permits the seizure of a debtor’s property that is in the possession of third parties
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Collection Remedies
Title III of the Consumer Credit Protection Act: A federal law that permits debtors who are subject to a writ of garnishment to retain a specified percentage or amount of their earnings
Allows debtors who are subject to a writ of garnishment to retain the greater of
75 percent of their weekly disposable earnings
an amount equal to 30 hours of work paid at federal minimum wage
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18. Consumer Financial Protection
Dodd-Frank Wall Street Reform and Consumer Protection Act: A federal statute that regulates the financial industry and provides protection to consumers regarding financial products and services
Bureau of Consumer Financial Protection: A federal administrative agency that is responsible for enforcing federal consumer financial protection statutes
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19. Consumer Financial Protection
Consumer Financial Protection Act of 2010: A federal statute that requires increased disclosure of credit information and terms to consumers and regulates consumer credit providers and others
Mortgage Reform and Anti-Predatory Lending Act: A federal statute that is designed to eliminate many abusive mortgage loan practices and mandates new duties and disclosure requirements on mortgage lenders and others
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20. Consumer Financial Protection
Truth-in-Lending Act (TILA): A federal statute that requires creditors to make certain disclosures to debtors in consumer transactions and real estate loans on the debtor’s principal dwelling
Regulation Z: A regulation that sets forth detailed rules for compliance with the TILA
Consumer Leasing Act (CLA): A federal statute that extends the TILA’s coverage to lease terms in consumer leases
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21. Consumer Financial Protection
Fair Credit Billing Act: A federal statute that requires that creditors promptly acknowledge in writing consumer billing complaints and investigate billing errors and affords consumer-debtors other protection during billing disputes
Fair Credit Reporting Act (FCRA): A federal statute that protects a consumer who is the subject of a credit report by setting rules for credit bureaus to follow and permitting consumers to obtain information from credit reporting businesses
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22. Consumer Financial Protection
Fair Debt Collection Practices Act (FDCPA): A federal act that protects consumer- debtors from abusive, deceptive, and unfair practices used by debt collectors
Equal Credit Opportunity Act (ECOA): A federal statute that prohibits discrimination in the extension of credit based on sex, marital status, race, color, national origin, religion, age, or receipt of income from public assistance programs
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23. Consumer Financial Protection
Fair Credit and Charge Card Disclosure Act: An amendment to the TILA that requires disclosure of certain credit terms on credit card and charge card solicitations and applications
Credit Card Accountability Responsibility and Disclosure Act (Credit CARD Act): A federal statute that requires disclosures to consumers concerning credit card terms, adds transparency to the creditor-debtor relationship, and eliminates many of the abusive practices of credit card issuers
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