I Mortgages

A mortgage is a security interest in land that secures repayment of a debt. The borrower is usually the mortgagor. The lender is the mortgagee.

Students often reverse those words, so repeat the rule plainly: the mortgagor gives the mortgage; the mortgagee receives the mortgage.

If Owner borrows money from Bank and grants Bank a mortgage on Blackacre, Owner is the mortgagor and Bank is the mortgagee. Owner still has an ownership interest in Blackacre, but Bank has a security interest that can be enforced if Owner defaults.

A mortgage usually has two related documents. The note is the borrower’s promise to repay the debt. The mortgage secures that promise with land. The note represents the debt. The mortgage gives the lender rights in the property if the debt is not paid.

The mortgage follows the debt. If the note is transferred, the mortgage generally follows it. If the debt is paid, the mortgage should be discharged. A mortgage without a debt generally has no independent purpose because the mortgage exists to secure repayment.

II. Mortgage Theories

Jurisdictions differ in how they conceptualize a mortgage. The three major theories are title theory, lien theory, and intermediate theory.

These theories can affect possession, rents, severance of joint tenancies, and foreclosure rights. Modern practice often treats the borrower as remaining in possession unless the mortgage or statute provides otherwise. But the theory still matters in exam problems because it can change priority, possession, and severance results.

III. Equity of Redemption

The equity of redemption is the mortgagor’s right to redeem the property before foreclosure by paying the debt.

This right is fundamental. Even after default, the borrower ordinarily may prevent foreclosure by paying what is owed before the foreclosure process is completed. The law dislikes forfeiture and gives the borrower a final chance to save the property.

A provision that prevents redemption from the outset is called clogging the equity of redemption and is generally invalid. For example, if a mortgage states, “If borrower defaults for one day, borrower permanently loses all right to redeem,” that clause is likely invalid. The lender may foreclose according to law, but may not eliminate the borrower’s equitable redemption right at the beginning.

The equity of redemption exists before foreclosure. After foreclosure, the borrower’s rights depend on statute.

IV. Statutory Redemption

Some jurisdictions provide a statutory right of redemption after foreclosure. This allows the borrower to reclaim the property within a specified statutory period by paying the required amount.

The statutory redemption period may be short or long depending on the jurisdiction and type of foreclosure. The amount required may be the foreclosure sale price, the full debt, or another amount defined by statute.

Statutory redemption can affect foreclosure sales because bidders know the borrower may redeem after the sale. That possibility may reduce bids. But the doctrine reflects a policy choice to give borrowers additional protection before permanent loss of land.

V. Foreclosure

Foreclosure is the process that terminates the borrower’s rights and sells the property to satisfy the debt. If the borrower defaults and does not redeem, the lender may foreclose.

• Judicial foreclosure requires a court proceeding. The lender sues, obtains a foreclosure judgment, and the property is sold under court supervision.
• Nonjudicial foreclosure, sometimes called power-of-sale foreclosure, occurs without a full lawsuit if the mortgage or deed of trust authorizes sale and the lender complies with statutory procedures. Notice, timing, publication, and sale requirements are often heavily regulated.

Foreclosure affects not only the borrower and lender, but also junior lienholders, tenants, buyers, and others with interests in the property. That is why priority matters.

VI Mortgage Priority

The general rule is first in time, first in right. Earlier mortgages usually have priority over later mortgages.

Suppose Owner grants Bank 1 a mortgage on January 1 and Bank 2 a mortgage on June 1. Bank 1 is senior. Bank 2 is junior. If the property is sold, Bank 1 generally gets paid before Bank 2.

But this general rule can be modified. Recording acts may affect priority if mortgages are not recorded. A later lender who records first and qualifies under the applicable recording statute may gain priority over an earlier unrecorded mortgage. Subordination agreements can alter priority by agreement. Purchase-money mortgages may receive special treatment. Future-advance clauses and refinancing doctrines may also affect priority.

A strong answer does not stop with “first in time.” It asks whether a doctrine changes the ordinary priority order.

VII. Purchase-Money Mortgages

A purchase-money mortgage (PMM) is a mortgage given to secure money used to purchase the property.

There are two common forms. The buyer may borrow from a bank to buy the property and give the bank a mortgage. Or the seller may finance the purchase by accepting payments over time and retaining a mortgage to secure the unpaid price.

Purchase-money mortgages often receive special priority, especially against certain claims arising through the buyer. The policy is that the lender’s money enabled the buyer to acquire the property in the first place.

For example, if Buyer purchases Blackacre using funds from Bank and gives Bank a purchase-money mortgage at closing, Bank may receive priority over some earlier judgment creditors of Buyer because Buyer did not own Blackacre until Bank’s purchase money made the acquisition possible.

VIII. Foreclosure by Senior and Junior Mortgagees

Foreclosure priority is a major exam point. The rule depends on who is foreclosing.

Suppose Bank 1 holds a first mortgage for $200,000. Bank 2 holds a second mortgage for $50,000. If Bank 1 forecloses, Bank 2’s lien may be eliminated, and Bank 2 receives payment only if sale proceeds remain after Bank 1 is paid. If Bank 2 forecloses, the foreclosure buyer takes the property subject to Bank 1’s first mortgage. Bank 1’s senior lien remains.

IX. Deficiency Judgments and Surplus

A foreclosure sale may not produce enough money to pay the debt. If the sale price is less than the debt, the lender may seek a deficiency judgment against the borrower for the balance, unless barred or limited by statute.

For example, if the debt is $300,000 and the foreclosure sale produces $250,000 after costs, the lender may seek a $50,000 deficiency judgment if allowed.

Many jurisdictions restrict deficiency judgments to protect borrowers, especially in residential mortgage contexts. Some require fair value hearings. Some prohibit deficiencies after certain types of purchase-money mortgages or nonjudicial foreclosures.

If the sale produces more than the debt and foreclosure costs, there is a surplus. Surplus proceeds are distributed to junior lienholders in order of priority. Any remaining amount goes to the mortgagor.

X. Installment Land Contracts

An installment land contract is a financing arrangement in which the buyer pays the purchase price over time, and the seller retains legal title until full payment.

Traditionally, these contracts could be harsh. If the buyer missed payments after years of performance, the seller might declare forfeiture, keep the land, and retain all prior payments.

Modern courts and statutes often protect buyers. Some treat installment land contracts more like mortgages, especially when the buyer has paid a substantial amount or taken possession. The seller may be required to use foreclosure-style procedures rather than simple forfeiture. Other jurisdictions allow forfeiture but impose notice, cure periods, restitution, or fairness limits.

The policy issue is clear. A buyer who has built equity in the property resembles a mortgagor. Harsh forfeiture may create an unjust windfall for the seller.

XI Fixtures

Fixtures are items of personal property that have become part of real property. Fixture disputes often arise between buyers and sellers, landlords and tenants, mortgagees and secured creditors, or life tenants and future interest holders.

The central question is whether the item remains personal property or has become part of the land.

Courts commonly consider three factors:

• 1. Method of attachment: How firmly is the item connected? A built-in furnace is more likely a fixture than a freestanding chair.
• 2. Adaptation to the property: Is the item specially adapted? Custom cabinets or specialized machinery integrated into a building may be fixtures.
• 3. Intent of the parties: Did they intend it to become realty? This is inferred objectively from attachment, use, and relationship.

XII. Fixtures in Common Disputes

In a buyer-seller dispute, the buyer generally expects fixtures to pass with the land unless reserved. If Seller removes built-in kitchen cabinets before closing, Buyer may object because the cabinets are fixtures.

In a landlord-tenant dispute, the tenant may want to remove items installed during the lease. The answer may depend on whether the item is a trade fixture, whether removal occurs before the lease ends, and whether removal causes substantial damage.

In a mortgage dispute, fixtures may be covered by the mortgage because they are part of the real property. But secured creditors may also claim interests in goods that become fixtures. Priority may depend on recording, fixture filings, and applicable secured-transactions rules.

XIII. Trade Fixtures

Trade fixtures are items installed by a tenant for business purposes. Examples include restaurant equipment, display counters, salon chairs, commercial shelving, or specialized manufacturing equipment.

Tenants usually may remove trade fixtures before the lease ends if removal does not cause substantial damage or if the tenant repairs the damage. The law favors business tenants’ ability to remove equipment used in their trade.

Timing matters. If the tenant fails to remove trade fixtures before the lease terminates, the fixtures may become the landlord’s property, depending on the jurisdiction and lease.

Not every business-related installation is removable. If removal would seriously damage the building or the lease provides otherwise, the tenant’s rights may be limited.

XIV Water Rights

Water rights determine how landowners may use water connected to land.

Groundwater rules vary. Some jurisdictions use reasonable use. Some use correlative rights, sharing water among overlying owners. Some use prior appropriation. Others rely heavily on statutes and permits.

XV. Support Rights

Support rights protect land from collapse caused by activity on neighboring land or beneath the surface.

• Lateral support is support from adjoining land. A landowner has the right to have land supported in its natural condition. If Neighbor excavates so carelessly or deeply that Owner’s land collapses, Neighbor may be liable. If the land would have collapsed even in its natural condition, liability may be strict. But if buildings contributed to the collapse, liability may depend on negligence.
• Subjacent support is support from underneath. It often arises in mining, tunneling, underground excavation, and mineral extraction. A surface owner may have rights against those who remove underground support and cause subsidence.

XVI. Accession and Confusion

Accession and confusion concern personal property and competing ownership claims.

Accession occurs when someone adds value to another’s property through labor or materials. Traditional rules often consider good faith, degree of transformation, and relative value. If the improver acted innocently and created something far more valuable, some courts may award ownership to the improver with compensation to the original owner. If wrongful, the original owner usually prevails.

Confusion occurs when similar goods from different owners are mixed together so individual ownership cannot be distinguished. If fungible goods (grain, oil) are commingled, owners may receive proportional shares. If one party wrongfully caused confusion, doubts are resolved against them.

XVII Complete Property Exam Strategy

A strong Property answer begins with classification. Before applying rules, identify the thing and the interest.

1. Identify the property: Real, personal, fixture, leasehold, easement, mortgage?
2. Identify the parties & claims: Who claims ownership, possession, future interest, lien?
3. Determine creation: Possession, gift, deed, will, lease, adverse possession, statute?
4. Classify precisely: Fee simple absolute, defeasible fee, contingent remainder, joint tenancy, term of years?
5. Analyze validity: Writing, delivery, recording, notice, privity, foreclosure procedure?
6. Determine priority: Who wins? Recording acts, first-in-time, BFP, foreclosure rules?
7. Analyze limits: Servitudes, nuisance, zoning, waste, support, takings?
8. Determine remedies: Damages, injunction, ejectment, partition, foreclosure?