Wilk bought an apartment building from Dix Corp. There
was a mortgage on the building securing Dix’s promissory note to
Xeon Finance Co. Wilk took title subject to Xeon’s mortgage.
Wilk did not make the payments on the note due Xeon and the
building was sold at a foreclosure sale. If the proceeds of the
foreclosure sale are less than the balance due on the note, which
of the following statements is correct regarding the deficiency?
Detailed Answer
(d) If a buyer takes a mortgage “subject to,†then the
buyer accepts no liability for the mortgage and the seller is still
primarily liable. The mortgagor does not have to attempt to
collect from the buyer first; he can go directly against the seller.
Therefore, answer (d) is correct, and answers (a) and (c) are
incorrect. Answer (b) is incorrect because Wilk did not assume
the mortgage but bought the building subject to the mortgage.
2
On April 6, Ford purchased a warehouse from Atwood for
$150,000. Atwood had executed two mortgages on the property:
a purchase money mortgage given to Lang on March 2, which
was not recorded; and a mortgage given to Young on March 9,
which was recorded the same day. Ford was unaware of the
mortgage to Lang. Under the circumstances
Detailed Answer
(b) A purchaser of real estate takes title subject to any
mortgage he was aware of or any mortgage that was recorded
before the purchase. Ford, therefore, takes title to the warehouse
subject to Young’s mortgage, but free of Lang’s mortgage.
Therefore, answer (b) is correct and answer (a) is incorrect.
Answer (c) is incorrect because there is no such provision. Answer
(d) is incorrect because the recording statutes change the
first in time concept to encourage the recording of mortgages.
3
Which of the following conditions must be met to have an
enforceable mortgage?
Detailed Answer
(a) To have an enforceable mortgage it must be in writing
and must include a description of the property and debt to be
incurred. Therefore, answer (a) is correct. Answer (b) is incorrect,
because although debt is usually evidenced by a promissory
note, this is not required to be. Answer (c) is incorrect because
the promise to pay is adequate consideration. Answer (d) is
incorrect because the amount of the debt and the interest rate are
not required to be stated in the mortgage.
4
On February 1, Frost bought a building from Elgin, Inc. for
$250,000. To complete the purchase, Frost borrowed $200,000
from Independent Bank and gave Independent a mortgage for
that amount; gave Elgin a second mortgage for $25,000; and paid
$25,000 in cash. Independent recorded its mortgage on February
2 and Elgin recorded its mortgage on March 12.
The following transactions also took place:
• On March 1, Frost gave Scott a $20,000 mortgage on
the building to secure a personal loan Scott had previously
made to Frost.
• On March 10, Scott recorded this mortgage.
• On March 15, Scott learned about both prior mortgages.
• On June 1, Frost stopped making payments on all the
mortgages.
• On August 1, the mortgages were foreclosed. Frost, on
that date, owed Independent, $195,000; Elgin, $24,000;
and Scott, $19,000.
A judicial sale of the building resulted in proceeds of
$220,000 after expenses were deducted. The above transactions
took place in a notice-race jurisdiction.
Frost may redeem the property before the judicial sale only
if
Detailed Answer
(c) A mortgagor has the right to redeem the mortgaged
property after default and before a judicial sale by payment of all
principal and interest due on the mortgage note. Thus, Frost
may redeem the property only if all mortgages are paid in full
prior to the judicial sale. Answer (a) is incorrect because the
right of redemption is a right that occurs after the judicial sale.
Most states allow a mortgagor a period of time, usually one year
after the foreclosure sale, to reinstate the debt and mortgage by
paying to the purchaser at the judicial sale the amount of the
purchase price plus the statutory interest rate. Answer (b) is
incorrect because Frost may redeem the property prior to the
judicial sale by paying all mortgages in full without regard to the
probable sale price of the property. Answer (d) is incorrect because
Frost would not have to pay penalty fees to the mortgagees.
5
A mortgagor’s opportunity to redeem will be terminated by
a judicial foreclosure sale unless
Detailed Answer
(d) After foreclosure of the mortgage, the mortgagor
may redeem the property by payment of all principal and interest
due on the mortgage note. However, the right of redemption will
terminate at the time of the judicial foreclosure sale unless the
jurisdiction has enacted a statutory right of redemption. Answers
(a), (b), and (c) are incorrect because they do not affect
when the mortgagor’s right of redemption terminates.
6
Rich purchased property from Sklar for $200,000. Rich
obtained a $150,000 loan from Marsh Bank to finance the purchase,
executing a promissory note and a mortgage. By recording
the mortgage, Marsh protects its
Detailed Answer
(b) Recording a mortgage protects the mortgagee
against subsequent mortgagees, purchasers, or other takers.
Therefore, answers (a), (c), and (d) are incorrect because those
answers involve parties with existing claims on the property.
7
Which of the following rights is (are) generally given to a
lessee of residual property?
I. A covenant of quiet enjoyment.
II. An implied warranty of habitability.
Detailed Answer
(c) The lessee of residential property, although not the
owner, generally has the right to possession of the property and
the right to quiet enjoyment of the property. The right to quiet
enjoyment means that neither the lessor nor a third party with a
valid claim will evict the lessee unless the lessee has breached the
lease contract. The lessee also has the implied warranty of habitability
which means that s/he has the right to inhabit premises
that are fit for human occupation.
8
Which of the following methods of obtaining personal
property will give the recipient ownership of the property?
Lease . . . . Finding abandoned property
Detailed Answer
(c) A lease is not a sale and does not involve a transfer of
title. A lessee may have possession and control of the property
but will not have ownership. When property is abandoned, the
owner relinquishes possession and title of the property. Subsequent
parties who acquire abandoned property with the intent to
own it acquire title.
9
Which of the following forms of tenancy will be created if a
tenant stays in possession of the leased premises without the
landlord’s consent, after the tenant’s one-year written lease expires?
Detailed Answer
(d) A tenancy at sufferance is created when a tenant
stays in possession of the leased property after the expiration of
the lease without the landlord’s consent. A tenant at sufferance is
a trespasser and the landlord may evict the tenant by instituting
legal proceedings. Answer (a) is incorrect because a tenancy at
will is an agreement that is not for a fixed period but is terminable
at the will of the landlord or tenant. In this situation, the tenant
does not have the consent of the landlord to stay in possession of
the property and a tenancy at will is not created. Answer (b) is
incorrect because a tenancy for years is a tenancy that has a fixed
beginning and end at the time of creation of the tenancy. Answer
(c) is incorrect because a tenancy from period to period
would only be created if the landlord allowed the tenant to remain
in possession of the property.