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1 Chapter 9
CHAPTER 9: Mortgage and Note
I. Discuss the relationship between the Note and
Mortgage
II. Explain the contract and purpose of the
Promissory Note
A. Define Obligor, Obligee
B. Explain what Principal is
C. Discuss Acceleration Clause
D. Discuss Signature by the maker
III. Discuss the Mortgage Instrument
A. Discuss the general Covenants
B. Explain the importance of the Alienation
Clause
C. Explain the importance of the
Condemnation Clause
IV. Define Mortgage Satisfaction and Partial
Releases
V. Discuss "Subject To"
VI. Discuss Assumption
VII. Discuss Novation
VIII. Discuss the applicability of Estoppel
Certificates
IX. Explain Debt Priorities in your state
A. Define First Mortgage
B. Define Subordination
C. Explain how Chattel Liens affect real estate
X. Discuss the Foreclosure Process
A. Define Delinquent Loan
B. Generally discuss possible Foreclosure
Routes
XI. Discuss Judicial Foreclosure
A. Define Surplus Money Action
B. Define Notice of Lis Pendens
C. Discuss the Public Auction aspect of fore
closure
D. Define Equity of Redemption
E. Define Deficiency Judgment
F. Explain Statutory Redemption
XII. Strict Foreclosure
XIII. Discuss when the Power of Sale is used
XIV. Discuss whether or not the Entry and
Possession applies in your state
XV. Deed in Lieu of Foreclosure
XVI. Discuss Installment Contract Foreclosure
XVII. Define Deed of Trust briefly, to be
discussed in next chapter
XVIII. Equitable Mortgage
XIX. Discuss the use of a Deed as Security
XX. Choice of Security Instrument
continuing liability
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Chapter 9 2
Page Ref.
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back back Topic Teaching Tips
141 142 Opening Remarks Start this chapter by distinguishing a mortgage from a promissory
note.
141 144 Obligor, Obligee Memory Hook:
Obligor = Borrower (two Os in each)
Obligee = Lender (two Es in each)
143 145 Prepayment Privileges Local Distinction: Discuss your state's laws, if any, regarding
prepayment Penalties. Consult an attorney.
143 146 The Mortgage Expanding the Text: A note can "stand alone;" it is a personal
Instrument obligation. A mortgage, however, serves no real purpose unless a
note also exists as evidence of the amount of the indebtedness.
145 146 Mortgagor, Mortgagee Memory Hook:
Mortgagor = Borrower (two Os)
Mortgagee = Lender (two Es)
Common Misconception: Most students confuse the mortgagor
with the mortgagee because they do not understand that the
mortgage itself is not money, but rather a contract. The Lender
gives the money to the Borrower/Owner. The Owner/Borrower
gives the Mortgage to the Lender as security. (Ref. Figure 9.2.)
Student comment, "`The mortgagee is not me."
145 146 Title, Lien Theory Summary: Under Title Theory, title is held (in theory) by the
States mortgagee (lender). Under Lien Theory, the mortgagee merely
has a lienhold, i.e., a lien on the property. Discuss the theories
utilized in your state.
148 149 Recording the Stress: The mortgage is recorded because it deals with rights and
Mortgage interests in real property, unlike the note which is a personal
obligation.
146 149 Mortgage Satisfaction Expanding the Text: This is also called a satisfaction piece, and
once recorded, it is the third of three instruments recorded
regarding this property:
1. Deed 2. Mortgage 3. Satisfaction.
147 149 "Subject to" Stress: The purchaser is not liable for the loan.
147 150 Assumption Stress: The purchaser is liable for the loan, but the seller is not
released from liability, i.e., he remains liable along with the
purchaser.
147 150 Novation Stress: The purchaser is solely liable for the loan. The seller is
released from liability.
There are two documents involved in a mortgage loan. The first is the promissory note
and the second is the mortgage. In 16 states it is customary to use a deed of trust in
preference to a mortgage. We begin by describing the promissory note because it is
common to both the mortgage and deed of trust. Then we shall discuss the mortgage
document at length. This will be followed by an explanation of foreclosure and brief
descriptions of the deed of trust, equitable mortgage, security deed, and chattel mortgage.
3 Chapter 9
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