RE Law Chp 10& 17

Borrower fails to meet a duty imposed upon him by mortgage, deed of trust, or promissory note

Lenders non-foreclosure response to a default

• Process:
• 1. garther loan docs
• 2. review loan docs
• 3. determine borrowers legal remedies

Reduce or suspend payment

extend repayment

reduce or eliminate accured interest

borrow transfers title to lender to satisfy loan default

passes existing lines on (liens junior to the mortgage survive)

Borrowre sells to 3rd party, with lenders consent, for a price LESS THAN amount owed on loan

Terminates borrowers claim of ownership

2. Eliniates junior-priority liens (Lender sells title free and clear of liens)

• 3. Lender must:
• Sue on promissory note or
• foreclose on mortgage

Mortgage required to follow procedural requirements (otherwise foreclosure doesn't occur)

• Process:
• 1. File and serve compliant
• 2. Trail of foreclosure sale
• 3. Order foreclosure sale issued

Equity Redemption: prior to sale, borrower can redeem the property. Pay default+interest+foreclsoure cost+all other costs

Statutory Redemption: After foreclosure, borrower can redeem property within certain time frame after foreclosure sale

1. Shock the conscience standard: due to fraud, sale price is unjust


2. Gross Inadequacy Standard: Price is shown as result of mistake, surprise, or some irregularity

1. Lender foreclose without court

• Process:
• Record notice of default
• set sale date
• trustee sale

Equity redemption rights: available up to several days before sale

statutory right of redemption: no right of redemption post sale of property

• 1. Property tax lien
• 2. costs of foreclsore
• 3. PMSI
• 4. First priority debt
• 5. Second and third priority debt
• 6. Surplus distribted to owner foreclosed on

proceeds from sale insufficient to pay debt, lender can sue the owner for balance


Only party foreclosing can receive deficient judgement

• Purchase Money Mortgages
• 1. Borrowed funds used to finance the purchase of the property

2.  FHA, vA, and Refiannces CAN have deficiency judgements

1. If current on payent, but unable to refinance bc of declining home value

• 1. HARP-eligible borrower
• 2. owe more than home is worth
• 3. obtained mortgge before 2009

• 1. Employed homeowners
• 2. have defaulted
• 3. reduce mortgage payments to 31% of gross income

1. HAMP for unemployed. Reduced payment to 31% of unemployment income

• 1. Unable to keep up with HAMP
• 2. allows short sales and deeds-in-lieu for homeowners

3 lose home, but Waives Deficiency Judgment