Mortgages and Notes: Lesson I

Written by Administrator

Definitions:

Mortgage: A mortgage is any instrument pledging an interest in real and/or personal property to secure a debt.

Balloon mortgages require a bold face disclosure however, there are some statutory exceptions. Failure to include the special bold face disclosure causes the lender to forfeit the right to demand the balloon payment.

Equitable mortgage is a mortgage implied by law.

Wraparound Mortgage: A wrap-around mortgage is a form of secondary financing in which a seller extends to a purchaser a junior mortgage which wraps around and exists in addition to one or more superior mortgages.

Disguised mortgage is still a mortgage. In Florida all mortgages are treated the same and enforcement is only by judicial foreclosure. Mortgagees cannot avoid the necessity of judicial foreclosure by disguising the mortgage. "Agreements for Deed", "Conditional Sales Contracts" and "Land Sale Contracts" have to be judicially foreclosed. Such documents usually recite that possession is transferred upon execution, and title is conveyed only upon payment in full. The payment schedule usually extends over a term of years and often the right of possession is claimed to the lender upon default. Such contracts and agreements are considered to be mortgages and are subject to the same constraints. Equity will declare the true character of the conveyance whenever property belonging to one person is held by another as security for a debt.

No action can be brought to enforce a contract for the sale of land unless the contract is in writing and signed by the party to be charged. In order to be an enforceable land sales contract, the statute of frauds requires the contract to satisfy two threshold conditions. First, the contract must be embodied in a written memorandum signed by the party against whom enforcement is sought. Second, the written memorandum must disclose all of the essential terms of the sale and these terms may not be explained by resort to parol evidence.

Equity: All mortgages shall be foreclosed in equity. All foreclosures are tried by the court without a jury. This is not the rule that applies to consumer claims brought in opposition to the foreclosure complaint which are often triable to a jury.

FORMS & INSTRUCTIONS

1. Residential Mortgage: To this Form you must add necessary information. You must note the date of the document, the name and address of the mortgagor (the person or entity who is borrowing the money), and the name and address of the mortgagee( the person or entity who is lending the money). Additionally, you must add the legal description of the property either on the same page or in an additional page noted as "legal description attached in Exhibit "A". Lastly, to this form you need to note the amount of insurance that is being required by the mortgagee, and add the signature of the mortgagor witnessed by two witnesses and then notarized by a registered notary.

2. Balloon Mortgage: A balloon mortgage is one in which the term of the mortgage is not fully amortized. In other words payments are calculated for a term of , let's say thirty years, but the full amount is due within five years. It is necessary that the legend above the words. This Mortgage Deed and above the signature must be included—otherwise the balloon mortgage aspect may not be foreclosed. To this Form you must add necessary information. You must note the date of the document, the name and address of the mortgagor (the person or entity who is borrowing the money), and the name and address of the mortgagee ( the person or entity who is lending the money). Additionally, you must add the legal description of the property either on the same page or in an additional page noted as "legal description attached in Exhibit "A". Lastly, to this form you need to note the amount of insurance that is being required by the mortgagee, and add the signature of the mortgagor witnessed by two witnesses and then notarized by a registered notary.

3. Wraparound Mortgage: A wrap-around mortgage is a form of secondary financing in which a seller extends to a purchaser a junior mortgage which wraps around and exists in addition to one or more superior mortgages. Under a wrap, a seller accepts a promissory note from the buyer for the amount due on the underlying mortgage plus an amount up to the remaining purchase money balance. The new purchaser makes monthly payments to the seller, who is then responsible for making the payments to the underlying (the superior) mortgagee. An example: The seller, who has the original mortgage sells his home with the existing first mortgage in place and a second mortgage which he "carries back" from the buyer. The mortgage he takes from the buyer is for the amount of the first mortgage, plus a negotiated amount less than or up to the sales price minus the down payment and closing costs. The buyer pays the seller, who then continues to pay the first mortgage with the proceeds of the second. Typically, the seller also charges a "middle" on the first mortgage. For example, one has a first mortgage at 6% and sells the whole property with a rate of 8% on a wraparound mortgage. He/she make a 2% middle on the first mortgage amount, using other people's money to make money. So, it is in the best interests of a seller to keep the wrap, rather than allow the buyer to assume the first mortgage.

4. Multi State Uniform Residential Promissory Note: This form is a standard Promissory Note used by Fannie Mae and most financial institutions. To this form you must add the date, the city and state of execution and the property address. In section 1 you must add the amount of the note and the name and address of the lender. In Section 2 you must add the interest rate. In section 3 add the amount, date and place of the payment as well as the maturity date (the date the entire amount is due). Section 6 provides for a late payment. Add the date that the payment –if not received by—is late.

5. Simple Promissory Note: To this form you must add the date, the city and state of execution and the property address. You must add the borrower, the lender amount of the note, the interest rate and the name and address for the payments. Additionally, the monthly payment amount, maturity date (the date the entire amount is due), and the date the payment is late. Add the date that the payment –if not received by—is late. Finally a signature of the borrower must be added.

Commercial Promissory Note: This form is intended for use by those who have a specific commercial project and are in need of Note that addresses certain standards therein. Review this Note carefully to ascertain that it meets your needs.