Black-letter propositions
- 01
The mortgagor retains equity of redemption until valid foreclosure; a contemporaneous clog on redemption is disfavored.
- 02
A buyer taking subject to a mortgage lacks personal liability, while one assuming it becomes primarily liable and the original borrower often becomes surety.
- 03
Priority generally follows first in time as modified by recording acts, purchase-money priority, subordination, advances, and modifications.
- 04
Foreclosure terminates properly joined junior interests but leaves senior interests; omitted interests retain rights.
- 05
Proceeds pay costs, foreclosing debt, junior liens by priority, then mortgagor, with deficiency and statutory redemption rules varying.
Use this attack sequence under time
Frame the issue
Identify note, mortgage, recording, and transfers.
Resolve the next checkpoint
Classify subject-to or assumption.
Resolve the next checkpoint
Rank every lien.
Resolve the next checkpoint
Check foreclosure parties and notice.
Finish the conclusion
Distribute proceeds and address deficiency and redemption.
Common wrong turns
- Junior foreclosure does not eliminate senior mortgages.
- The note ordinarily carries the mortgage.
- A material modification can lose priority against prejudiced junior interests.
Worked example
A buyer assumes a mortgage, defaults, and the lender sues buyer and original borrower.
The buyer is primarily liable; the original borrower remains liable absent release but has surety rights.
Practice this topic
Mortgages and foreclosure
Cornell defines a mortgage as the transfer of an interest in land as security for a loan or other obligation, the most common method of financing real estate. The mortgagor transfers the interest and the mortgagee, usually a financial institution, provides the loan. Payment is normally by installments of interest and principal, and failure to pay can result in foreclosure. Foreclosure is the catch-all term for processes a mortgagee uses to take mortgaged property from a borrower in default, governed by the law of the place where the property is located.
One state statute Cornell cites defines foreclosure as an action to terminate legal and equitable interests in real estate, and the term can also refer to the foreclosure sale.
Redemption
Equity of redemption is a defaulting mortgagor's right to prevent foreclosure and redeem the property by discharging the debt within a reasonable time. Cornell says the right exists from the time of default until foreclosure proceedings commence, and the mortgagor must exercise it within a certain time before absolute foreclosure.
The conditions for default vary by state and by the loan documents, so identify the default first and then the procedure the jurisdiction uses.
Cornell notes that a mortgage is normally paid in installments of interest and principal and that failure to pay results in foreclosure, and it adds that the conditions for default vary by state. When a question involves priority among several lenders, apply the recording rules from the previous topic to the mortgages before you analyze foreclosure.
Frequently asked questions
What is the controlling rule for debt, transfer, priority, foreclosure, and redemption?+
Mortgage problems require separate treatment of the debt, land security, transfer liability, priority, foreclosure, proceeds, and redemption.
How should I analyze debt, transfer, priority, foreclosure, and redemption on the bar exam?+
Identify note, mortgage, recording, and transfers. Classify subject-to or assumption. Rank every lien. Check foreclosure parties and notice. Distribute proceeds and address deficiency and redemption.
What is a mortgage?+
The transfer of an interest in land as security for a loan or other obligation, according to Cornell.
Who are the mortgagor and mortgagee?+
The mortgagor transfers the interest in land, and the mortgagee, usually a financial institution, provides the loan.
What is foreclosure on the bar exam?+
A catch-all term for the processes mortgage holders use to take mortgaged property from borrowers who default, governed by the law of the property's location.
What is the equity of redemption?+
A defaulting mortgagor's right to prevent foreclosure and redeem the property by discharging the debt within a reasonable time.
When does the equity of redemption exist?+
From the time of default until foreclosure proceedings commence, according to Cornell's summary, and it must be exercised within a certain time before absolute foreclosure.