1. The Historical Development of the Mortgage

2. The original mortgage: MR ME deed of fee simple subject to condition subsequent A "dead pledge."

3. The "equity of tardy redemption": Even though MR did not pay on law day, the equity courts would permit MR to pay late and redeem the land. 12 3 6 9

4. Foreclosure of the equity of redemption: The court would set an outside date beyond which the MR could no longer redeem.

5. Strict foreclosure: The ME simply kept the land. Foreclosure by sale: The land was sold and the ME received the proceeds of the sale, with the remainder going to the MR.

6. The rule against "clogging": If the MR (in the mortgage) purported to waive the right to redeem in equity... that waiver was deemed unenforceable.

7. Acceleration of an installment loan: After a default, the lender declares the entire balance due and payable. (requires a clause in the note or mortgage so providing)

8. before default & accel. after default & accel. foreclosure post- foreclosure Period of equitable redemption Period of statutory redemption (in about 20 states)

9. Equitable redemption: Available in all states. (To redeem, you pay the debt.) Statutory redemption: Available in about 20 states. (To redeem, you pay the amount that was bid at the foreclosure sale.)

10. Now we’re going to consider situations in which there’s more than one mortgage on the same property.

11. Mortgage 1 Mortgage 2 Multiple mortgages can be placed on the same real estate. Their priority depends on their chronological order unless: some mortgagee fails to record, or the parties agree to change priorities MR ME2 ME1

12. What determines the order in which the mortgages are foreclosed? ■It has nothing to do with their priority: ■Either the first or the second mortgage might foreclose first. ■It depends on which lender experiences a default and loses patience first.

13. What Happens in Foreclosure ■The mortgage being foreclosed is wiped off the title. ■So are all mortgages and other interests of lower priority (if they’re properly served and made parties). ■But interests with higher priority are not affected by the foreclosure. ■So we say "Foreclose down."

14. A mortgage can only be foreclosed “down”: ■ME1 can foreclose against ME2 and wipe out ME2's mortgage. ■But ME2 can’t foreclose against ME1 at all. MRME1 mortgage MRME2 mortgage

15. MRME1 mortgage MRME2 mortgage MRTenant lease Assume ME1 forecloses first.

16. MRME1 mortgage MRME2 mortgage MRTenant lease B Fcl.

17. MRME1 mortgage MRME2 mortgage MRTenant lease Assume ME2 forecloses first.

18. MRME1 mortgage MRME2 mortgage MRTenant lease B

19. MRME1 $30,000 MRME2 $15,000 MRTenant lease FMV of property = $50,000

20. If ME1 forecloses, and the high bid is $50,000, how will the money be distributed? ME1: $30,000 ME2: $15,000 T: bonus value of lease, if any [?] MR : $ 5,000

21. Same facts, but the bid at the sale is only $40,000. ME1: $30,000 ME2: $15,000 ME2 has a deficiency claim against MR for $5,000. Does T have a claim against MR?

22. Why are junior mortgages more risky than senior mortgages? ?

23. MRME1 $30,000 MRME2 $15,000 MRTenant lease FMV of property = $50,000

24. Again assume $50,000 FMV. If you bid at a foreclosure by ME1, how high would you bid? ✌ If you bid at a foreclosure by ME2, how high would you bid?

25. At ME2's foreclosure sale, assume the bid is $20,000. How will the funds be distributed?

26. At ME2's foreclosure sale, assume the bid is $20,000. How will the funds be distributed? ME2: $15,000 T : bonus value, if any [?] MR: $ 5,000

27. Why does ME1 receive none of the proceeds of ME2's foreclosure? (Because the foreclosure by ME2 does not impair ME1's rights at all; ME1 may still foreclose later.)

28. The End