Chapter 20 – Mortgages, Security Interests, and the 21st Century Financial Crisis
10. When a borrower does not qualify for a regular mortgage, he or she might get a
subprime loan with a higher interest rate.
11. A junior mortgage, also called a second mortgage, is a mortgage subject to a prior
12. A home equity loan is an example of a junior mortgage.
D. Recording the Mortgage
1. A mortgage must be in writing and delivered to the recorder’s office in the county in
which the property is located.
2. Recording a mortgage notifies any third party who may be interested in purchasing
the property or in lending money to the owner that the mortgagee has an interest in
the real property covered by the mortgage.
3. Failure to record may result in a later mortgage being given priority.
E. Rights and Duties of the Mortgagor
1. The mortgagor has the right to possess the property.
2. The mortgagor has the right to income produced by the property.
3. The mortgagor has the right to use the property for a second or third mortgage.
4. The mortgagor has the equity of redemption, which is the right to pay off the
mortgage in full, including interest, and to thus discharge the debt in total.
5. The mortgagor has the duty to make payments on time.
6. Mortgagors must preserve and maintain the mortgaged property for the benefit of the
mortgagee’s interest and security.
7. The mortgagor is often required to insure the property for the benefit of the
mortgagee to the amount of the mortgaged debt.
8. The mortgagor must pay all taxes and assessments that may be levied against the
F. Rights and Duties of the Mortgagee
1. The mortgagee has the unrestricted right to sell, assign, or transfer the mortgage to a
2. Mortgagees have the right to receive each installment payment as it falls due.
3. Frequently, mortgagees will include a term in the mortgage agreement allowing an
acceleration of the debt if the mortgagor fails to meet an installment payment.
4. If the mortgagor has defaulted or has failed to perform some other agreement in the
mortgage, the mortgagee has the right to apply to a court to have the property sold.
5. Mortgagees cannot lose their interest in property without due process of law.
6. Both state and federal legislation prohibits lenders from discriminating against
borrowers because of race, creed, color, sex, or ethnic background.
G. Purchase by Mortgage Takeover
1. Mortgages often contain a clause providing that if the property is sold, the mortgage
becomes due and payable; but in the absence of such a clause, the property may be
sold with the mortgage remaining on it.
2. In purchasing a property already mortgaged, the buyer will either assume the
mortgage or take the property subject to the mortgage.
II. The 21st Century Financial Crisis
A. The Nature of the Crisis
1. There is an argument that tetonic shifts, such as shifts in agriculture, transportation,
health, and demographics, are caused by human activity.
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