Mortgages OutlineGeneral Info

Concept of Mortgages: to secure the repayment of a loan. Mortgagor - debtor/borrower Mortgagee - lender Deed of Trust - mortgagor grants a title to the trustee so that, if mortgagor defaults, the trustee may sell the

property in a non-judicial foreclosure saleo Judicial Foreclosure – requires the debt to be proved up in court prior to foreclosure

Must give notice to the debtor and inferior lienholders Must have a title interest to redeem

o Non-Judicial Foreclosure – allows foreclosure to take place w/o the court’s permission beforehand

Occurs pursuant to the deed of trust or statute Need only notify the debtors Selling the property cuts off the inferior lienholders Prior to selling, anyone w/ interest can pay off and redeem the debt

Equitable Mortgage – security implied, by the courts, for a debt Waste of Security – not taking care of the property, thereby endangering the mortgagee’s security interest A suit to foreclose just says you have the right to foreclose, you still need to sell the property Liz pendent – places the world on notice that the property is under dispute Writ of sequestration – sheriff takes possession of land and holds it for the time of the trial Writ of attachment – holding under an unsecured note, file a writ to attach the asset to the; must pay bond to

payoff anyone who was harmed if you are incorrect 2 theories of Mortgages

Title Theory - not be covered much on test, just know what is belowo From Common Lawo A title transfer with a right of redemption in favor of the mortgagor

o The mortgage is a conveyance

Mortgagor – the one barrowing money and transfers title to the land to the mortgagee Land is transferred from mortgagor to mortgagee in a title event with the right in the

mortgagor to redeem the property; or buy back - payor Mortgagee – the person or entity who loans the mortgagor money and now holds title to the

land as security for repayment - payeeo Original Common Law – if mortgagor did not pay the mortgagee according to terms, the original

common law would destroy the right of redemption and the mortgagee had absolute righto Now: Strict Foreclosure Order: the right of the mortgagee to claim the absolute title because the

extension of the chancorlee had surpassed Same result as original common law, but w/ an extension of time to pay off and redeem

property Mortgagee goes to court to get a specific date when the mortgagor has no right of redemption

Security Theory – most states including TXo The mortgagor continues to be owner of the land and only gives a security for repayment of the debt

to the mortgageeo The mortgagee loans money to the mortgagor and only takes a security interest in the land, not title –

receives only a means to enforce the debto If the mortgagor fails to make proper payment or obligation of the mortgage, or defaults, the

mortgagee must “foreclose”o Foreclosure requires sale of the property; mortgagee must sale the property at public outcry and

submit the proceeds to the loano 2 types of foreclosure:

Judicial Foreclosure The mortgagee file suit for failure of payment, and request the court to find that there is a mortgage in favor of the mortgagee and to sale

the property at public outcry, and Use the proceeds of the sale to pay for expenses and payment of the loan.

Private Foreclosure or Deed of trust – regulated by statute A deed of trust gives the mortgagee a private right of foreclosure Mortgagor transfers the land into a trust for purposes of foreclosure only; Trustee does nothing until mortgagee request; only thing trustee in deed of trust can

do is execute a foreclosure.o If mortgagor follows all terms of K, then when mortgage is paid off the mortgagee releases the

security interest in the land.The nature of the interest owned by the Mortgagor and the Mortgagee

Beginning foreclosure does not increase the rights of the mortgagee, mortgagor still owns the land until it is “Sold”

Mortgagor has full property rights so long as the property has not been sold in foreclosure; mortgagee only has security interest incase of unpaid debt, but must go through foreclosure process.

Farmland Foreclosure: Willis Caseo mortgagor sells unharnessed crops on land in which foreclosure process has startedo Under the security theory, the crop belongs to the mortgagor and if he does not sever the crop before

the sale, then it goes to the purchaser at the foreclosure sale.o If the crops have been severed by time of sell, then the crop goes to the person who owns them. –

severed either actually or constructively o Severance:

Ways to sever: Actually Severed: Actually harvesting crop Constructively severing: sell the crop subject to the harvesting

o If an ungathered crop has been constructively severed and the land is sold at a foreclosure sale, then

the crop owner has the right to tend and harvest the crop. Emblements:

o The right of a possessor of land, under an indefinite term, to go back onto the land and take care of

and harvest growing annual crops even though the crop owner no longer has interest in the propertyo Must be annual cropo The right or interest in the land must be for an indefinite term:

Lessees in an indefinite terms Life estate – life tenant A lease for an indefinite term

A Periodic Estate: This is an on going lease which automatically renews and requires notice to end

Estate at will: This is a lease for an indefinite period, no ending date, and may be terminated at any time.

Not an Estate for Years – this is a lease for a specific amount of time and ends at a determined date

Mortgagor cannot have a emblement right against mortgagee, but it is possible for a lessee of the mortgagor to have an emblement right against the mortgagee

Meaning after the foreclosure sale, the lessee still has the right to enter and tend to and harvest the crop against the owner who purchased at the foreclosure sale.

o But usually a mortgage carries all additions to the land, a building will go w/ the new owner

Rents collected during pending foreclosure - Case: McGeorgeo Until actual sell, mortgagor owns the property as landlord and is entitled to the money from the

rentals on the property. o Rents from the mortgagor’s lessees go to the mortagor, even during the pending foreclosure;

Mortgagor gets all rents up until the actual sello But, rents can be an additional security

A provision in the mortgage can state that rent can be an addition security in the payment of the mortgage

Rents as additional Security - Taylor Case (assignment of rents for security purposes or pledge of additional)o What does rents as additional security mean?

You have a right to demand rents if you have proceeded properly Mortgagee is not automatically entitled to the rents; like throwing mortgagor off property

o Ways in which the mortgagee can recover rents,

Receivership - is most common way of receiving rents, a law suit seeking foreclosure of the mortgage & court appoints a receiver to collect and apply rents to the unpaid indebtedness, after foreclosure sale

It is also possible to have a contractual agreement to appoint a receiver. To impound the rents – take some contractual provisions beyond the clause, and occurs based

on certain events Mortgagor gives up possession and mortgagee take over the possession for the purposes of

protecting his security interest; mortgagor still owns the property. – doesn’t usually occur Assignment of rents for title purposes, or possible just assignment of rents

o Assignment outright has an automatic entitlement to the assignee.o You will also have clauses on how they will be assigned – payment for the mortgage

Waste of the security – means the mortgagor is not taking care of the security (property) and is endangering the interest of the mortgagee

Notes:o w/o “rents as additional security” you can’t appoint a receivero In TX, a district court needs to appoint a receiver in an action by a mortgagee for the foreclosure of a

mortgage and sale of the mortgaged property. 64.0001(a)(4)(c)(1)&(2) – can only appoint a receiver if:

mortgage property is in danger of being lost, removed, or materially injured- or the condition of the mortgage has not been performed and the property is probably

insufficient to discharge the mortgage debt

Executory Contracts; The Vendor’s Lien Executory Contracts – A contract in which at least some material obligations have not yet been performed Vendor’s Lien – a lien which for the purchase money Always in favor of seller, vendor and may be assigned to a 3rd party. Vendor’s lien arises in 2 ways:

o Expressedo Implied

Expressed Vendor’s Lien – V. Lien reserved in K or deed of transfer: case below for docs sign at once!o Superior title comes w/ an expressed vendor’s lieno Superior title means only that your (seller’s) title is superior to the transferee (buyer) if the transferee

fails to perform (pay)o Superior title gives the common law right that gives the vendor the right to rescind, o An expressed vendor’s lien gives the seller 2 possible remedies for the failure of payment:

Rescission of the K – allows the vendor to take back the property b/c of defualt Foreclosure – property is sold and proceeds are to cover the debt owed

Implied Vendor’s Lieno V. Lien is implied by C. Law if the deed states the purchase price, but is silent as to how the money is

or will be paid – this occurs when there is no expressed vendor’s lien You pay 500 down and 500 in 6 mths, I give you deed absolute on its face – I get a vendor’s

lien even though deed states nothing about lien or paymentso Foreclosure is the only remedyo Must have superior title to rescind and Implied V. L. does not give the vendor superior title.

Assignment and Rescission:o The assignee must have a transfer of superior title to have a right of rescissiono In the assignment, the vendor need to expressly state the right of rescission to transfer that remedy

Three ways to get rid of a Mortgagoro Foreclosure sale

Judicial Non-judicial or private right of foreclosure

Only occurs if there is a clause in the K giving the mortgagee this right Pursuant to statute but still public; all foreclosure sales are public

Foreclosure cuts off all intervening rights, except B.F.P. Ex: b/a is subject to a mortgage; mortgagor owns b/a & transfers ½ minerals to X; X

ownes ½ minerals – this transfer is subject to the mortgage; If mortgagor fails to pay and there is a sale to Y, then Y is the owner in fee and X has no more rights. Title would go to the purchaser and intervening rights are cut off

However, X may be a B.F.P. if the mortgage is not recorded or there is no other type of notice

You always have a right to foreclosure, but to have a private or non-judicial right, then you must enter into a K with that clause

o Rescission

Only a vendor has the right of rescission if: There is an unpaid debt Express reservation of vendor’s lien

No right w/ implied vendor’s lien (Superior title is what gives the right, not the lien)

If the vendor transfers the property to vndee w/ unpaid money, then there is a lien If the vendor assigns the mortgage and the vendor’s lien, he must specifically assign

the superior title Only then will assignee have the right of rescission, otherwise the assignee

will only have the right of foreclosure 2 ways to rescend

File suit Deed Back to vendor/mortgagee

Sometimes called, deed in lieu of foreclosure Land conveyed to mortgagee by the mortgagor in forgiveness of indebtedness Does not cut off intervening rights, the mortgagee would not get the mineral rights

as stated above. Debt is gone, but all mortgagee gets is what the mortgagor owned at time of

conveyance

K for sale – long termo The sale is binding, there will be payments by the buyer to the sellero Title stays w/ vendor until all payments are made

If title is transferred before all payments are made, then the deed is transferred to the vendee and the vendor gets a mortgage on the land

o Forfeiture and specific performance and damages are remedies for a K for saleo Equitable conversion also applies –

TX follows the act that liability of loss follows the person w/ the right of possession K for sale, fort term – the seller has the risk of loss Case –

o vendor did not assign superior title when he assigned the property to assignee – prob #1o Prob # 2 – the mortgagee was in default, so he deeded back the property to the assignee, but assignee

did not get the mineral right which the mortgagor had sold – assignee would have gotten them if he foreclosed

o Prob #3 – quickclaim deed – a deed which conveys the right, title, and interest which the grantee has

at the time of transfer. Case:

o Vendor had vendor’s lien w/ superior title; father, mortgagor, could not pay, so made agreement w/

son that if he paid it off then he could have the property. son paid off mortgage and made improvements on land. Father died and son’s siblings are claiming interest.

o Statute of frauds not an issue, b/c father did not have anything to give – the vendor had superior titleo Here, out of equity, a constructive trust was created in favor of the son or else it would have been

unjust enrichment o Could have also done an Equitable Deed

Take possession, paid off debt, made improvements, K rights, 2 types of K

o Executory – contract of sale

Everything is done except pay the money and grant titleo Unperformed K – contract to Sale, a K that says we will have a K to convey the land in the future

Rights of creditors Executory Contract

o Vendee has possessiono Down payment + installment agreemento Remedy at law= forfeiture, o Reasons to foreclose or foreit –

Default Not keeping property in repair – Not keeping insurance on property

Deed of trust mortgageo In order to secure, the property is transfer to a trusteeo The trustee is a trustee for the seller and only has legal title for the limited purpose of foreclosure.o The trustee can only foreclose when told to do so by the sellero Trustee follows the requirements of the deed of trust and statuteso Property is sold at the courthouse door on the 1st Tuesday of every month after proper notice is giveno Must be sold by actual trustee and money is used to pay of debt and expenses

Case – o K for sell property, buyer gets title after X payments. Paving lien was established b/c the buyer fail to

pay cost. Since the seller still owns the land, he is liable for the improvement. The statute made the paving lien superior to the vendor’s lien.

Impairment of securityo A covenant of a mortgage is that the mortgagor will not do anything to the land which will preclude it

from being sufficient security for the debto Mortgagee is obligated to have a security of the same value, more or less, as at the time of the

mortgage – no matter of wear and tear, but mortgagor can’t do anything to damage the securityo Law is – unless K for, the mortgagee can’t restrict mortgagor from impairing the security as long as

the value of the land is above the amount of the mortgage + cushin Not the same value, b/c the mortgagee needs some cushion – Meaning 1,800 when the mortgage in 1,000

o But the case allowed a defaulting mortgagor to sell an elevator, this was not impairment b/c the

remaining value of the property was sufficient to cover the debt.o So mortgages will usually have restrictions – not against alienation of the land – this can’t be done,

o But limitations on severing portions of the security which b/c personal property

Condemnation - Whether the mortgagee or mortgagor is entitled to money paid as compensation for condemnation Mortgagor owns land,

o If there is a condemnation of entire land, whole premises, - everywhere

Mortgagee gets paid off, then the mortgagor gets the rest, if anyo Partial condemnation of property – TX and others, but not all

The mortgagee will get an amount for the impairment of the security If the partial condemnation does not impair the value of the security of the

mortgagee, then mortgagor gets all $ If the security is impaired, the mortgagee is paid off to the point that the remaining

property is sufficient to secure the remaining debt Then after mortgagee is paid for decrease in security, then mortgagor get rest of $

Case, b/c the mortgagee has no rights of ownership or possession, only security, and there was sufficient value in the remaining property to cover the debt, money goes to mortgagor

Chapter 2 – Common security devices and their creation§1 – Deeds of Trust and Mortgages

Generallyo A deed of trust is a procedure whereby the mortgagor conveys the property to a trustee to hold only

for foreclosure Trustee is invariably chosen by the mortgagee, like the VP or… Title passes for foreclosure purposes only

o Security lien upon which has been grafted a private right of foreclosure

Writing, Delivery, and Acceptanceo §5.021 TPC:

A conveyance of an estate of inheritance, a freehold, or an estate for more than one year, in land and tenements, must be in writing and must be subscribed and delivered by the conveyor or by the conveyor’s agent authorized in writing.

A mortgage may not be created by parol – must be an expressed mortgage The filing for record by the grantor at the request or with the consent of the grantee or

mortgagee amount to a constructive delivery

If the grantor is grossly negligent in allowing the deed to get out of his possession, then delivery, which has not legally taken place, is imputed from the grantor to the grantee. Similar to adverse possession—if you are stupid, then your property is probably better off in someone else’s possession

o §26.01 TBCC:

A contract for the sale of real estate is not enforceable unless the promise or agreement, or memorandum of it, is in writing and signed by the person to be charged with the promise or agreement or by someone lawfully authorized to sign for him.

Agency if authorizing someone to execute a mortgage for you, it must be in writing

Statute of frauds: to the extent that the mortgagee is granted a security interest in the land, the conveyance must be in writing in order to have a provable mortgage

The mortgage becomes unenforceable (although not void)Case: Allen

A mortgage for statute of frauds purpose is a transfer and must be in writing But, a deed absolute on its face intended to be a mortgage may be proven to be a mortgage: the transfer is in writing, but the fact that the transfer a for security purposes can be proven by parol

o A owns B/A, goes to B and ask for $1. B agrees but needs B/A for security. If not paid back in one

year, the deed is considered to be absolute and B/A is B Allowable exception to the parol evidence rule, but BFP will prevail

Proper Steps a mortgagee can get a lien on a homestead to Secure Money and Give a Mortgage on Land on Which a Financed Improvement is to be Built With an Interim Financer

Case: a lender cannot get a mechanic’s lien accept from an assignment from a contractoro Only a contractor can enter into a M&M lien

Proper way - If dealing with a homestead, the only way a permanent financer to have a lien is through these steps:

o 1) Loan commitment from a permanent lender

go to lender, show construction plans and ask for funds. You get an up front commitment for permanent funds

o 2) Construction lien contract between land owner and contractor

enter into agreement to do the building - o 3) Interim Financing

ordinarily the builder cannot afford to build w/o funds Assignment of the construction lien contract to interim lender by the contractor under

agreement concerning the advancing of funds, funds are supplied as building occurs

o 4) Contractor builds structure with interim fundso 5) Upon completion of structure the permanent financing is closed

A) Owner signs affidavit of acceptance – agreement that building is properly built B) Contractor signs affidavit of bills paid C) Interim financer assigns the construction lien contract to the permanent financer D) Owner executes a new installment note and deed of trust mortgage with the permanent

lender E) Permanent financer pays interim financer, contractor, etc. and receives M&M lien F) Owner takes possession of the improvements with obligation to pay the installments o the

note, etc.Texas Constitutional Inhibitions on lien on homesteads

Homestead: property occupied or intended to be occupied for familiy living; In TX can be single or family Restrictions:

o Can only have one homesteado Urban: must be a single tract not to exceed 10 acreso Rural: Can’t exceed 200 acres, but can be on various tracts; although the land does not have to be

contiguous, it all has to be in furtherance of family living – like hunting Gen Rule is a homestead is protected from forced sale, except for 8 exceptions (meaning, No lien can be

placed on an existing homestead except for 8 things – Note, If the lien was pre-existing before the property was homesteaded, then lien still exsits

1. Purchase money, or part thereof - a vendor’s lien2. Taxes due on property3. Owelty partition – a lien placed on the (entirety of the property) by court order or written agreement

in a divorce4. Refinancing of a lien against a homestead, including a federal tax lien resulting from the tax debt of

both spouses, if the homestead is a family homestead5. (M&M Lien) Work and material used in construction of new improvements on the homestead if

contracted for in writing, or work or material used to repair or renovate existing improvements if: 4 requirements

If work and material are contracted for in writing , w/ consent of both spouses and executed with all formalities as required of sale or conveyance of the homestead

The K for W/M is not executed by owner or spouse before the 5th day after the owner makes a written application for any extension of credit for the W/M, unless the W/M are necessary to complete immediate repairs to condition on the homestead the materially affect health & safety and the owner of the homestead acknowledges such in writing

5 day cooling off the K for the W/M expressly provides that the owner may rescind the K w/o penalty or charge

w/in 3 days after execution of the K by all parties, unless the W/M are required for immediate safety concerns

the K for W/M is executed by the owner and spouse only at an office of a 3rd party lender making an extension of credit, an attorney’s office, or a title company

6. (A home equity Loan) – an extension of credit secured by the value of the homestead; simply a mortgage which is secured by the owners equity in the homestead (value beyond balance of mortgage) requirements: - know like 6

in writing, voluntary, w/ consent of owner and spouse Does not exceed 80% of the equity you have in the home Is w/o recourse for personal liability Only allows for judicial foreclosure Not open-ended – one time barrow, not a little at a time Payable in advance w/o penalty or charge Is not secured by any additional real or personal property Not secured by agricultural homestead, unless it is for the production of milk May not be accelerated b/c of a decrease in the FMV of the security It is the only debt secured by the homestead, unless the other debt falls into 1) – 5) above Substantially equal payments beginning no later than 2 months from the date of extension Loan is not closed before:

The 12th day after the later of either: The owner of homestead submits an application to the lender for the

extension of credit, or The date the lender provides the owner a copy of the notice

And the 1st anniversary of the closing date of any other home equity loan Is closed only at the office of the lender, an attorney, or title company Rate can be fixed or variable rate Lender is not able to refuse to make loans based on location, area of town, the homestead is

located – called red lining The loan made on the condition that:

The owner is not required to apply the proceeds to repay another debt The owner does not assign wages as security for extension

The owner does not sign any instruments in which blanks are left to be filled The owner does not sign a confession of judgment or power of attorney Owner provided w/ copy of all signed docs The instruments contain a disclosure statement After it is paid off, the lender cancels and returns the note to the owner There is a 3 day rescission right There is a written acknowledgment of FMV Lender forfeits interest if they fail to comply w/ their obligations

7. A reverse mortgage If you are of sufficient age, 62, you may barrow against the equity of your homestead and the

bank does not give it to you all at once, but gives it to you in installments and the bank get their money back, usually out of the estate

8. Conversion and refinance of a personal property lien secured by a manufactured home (trail) to a lien on real property

Occurs when person buys a trailer and decides to attach it to land Amount covers cost of trail, land, and connection fees

Vendor’s Liens Implied Vendor’s lien

o An implied vendor’s lien does not give the vendor superior title.

Expressed Vendor’s Lieno Vendor’s lien – a legal charge imposed by the law against a property whenever it is sold and the

purchase price is not fully paid; purchase money against the lando Superior title remains in the vendor

Where a vendor sells land and retains an express lien in the deed in his own behalf to secure the payment of the purchase money, he thereby retains superior title to the property

Any assignee of the vendor, however, does not acquire the superior title unless it is expressly assigned

When a deed merely retains a lien in favor of a 3rd person to whom the purchase money is to be made payable and does not expressly convey to him the superior title, the holder of the note does not have a superior title to the property, he merely holds a lien on the property

An ABSOLUTE DEED—generally, when an individual conveys under a general warranty deed, the vendor retains superior title, and passes equitable title to the vendee. However, when the vendor conveys by absolute deed the vendor conveys the superior title to the vendee.

o If in the conveyance of real property, a deed absolute merely does not retain superior title

o If there is recitation of unpaid purchase money then the implied VL arises.o Under Deed Absolute, the vendee has both equitable and legal (superior) title.o Statute of limitations and promissory notes: superior title remains in vendor until no more debt is

owed. Therefore, if the vendee defaults and ceases payments and the statute of limitations runs (generally 4 years), the lien goes away and, because no more money is owed, the superior title vests in the vendee

McKelvain Case:o In the notes payable there was a reservation of a lien, but no reservation in the deedo If the instruments are executed together, then read document as one to preserve the expressed

vendor’s lien Robinson

o Assignment of vendor’s lien must specifically assign the superior title, if not then only a vendor’s lien

is assigned and nothing more then foreclosureEquitable Mortgages and Liens

Equitable Mortgages - something not in writingo Where one furnishes money to another with which to purchase land, under an agreement that the

purchaser will execute a mortgage or give a lien upon the property in the future to secure the money advanced

o the agreement will be enforced in equity as a mortgage, on the theory that it would constitute a fraud

against the lender if it were not enforced As per homesteads: until the purchase money for the property is paid, the purchaser has no

interest that would support a homestead claim against the lender The homestead right is subordinate to the vendor’s lien

o `Case: Bagley – Know for test – only example of a mortgage enforceable in equity

Lender gave money to barrower to purchase b/a, then afterwards the barrower is supposed to give the lender mortgage on land

Requirements to get equitable mortgage: Oral agreement to advance money to buy specific land and to give a written

expressed mortgage on that land to the lender The money is actually lent The land is actually purchased

Must be specific land that is adequately described The mortgage is not executed

Purchase money resulting trust – This is a “Look-a-like” to the Equitable Mortgageo It is a common law concept that whoever pays the money owns the land. You look to see where the

money came from. The property does not have to be specific beforehand and title follows the consideration. Has only one possibility: money is advanced to buy land for the party advancing the money.

o Even though purchaser’s name is on the deed, the deed will be placed in a trust for the lender

Movement of a mortgage If you have a homestead property and there is another property that you wish to make your homestead, You

may by agreement move mortgage from one property to another It is valid to move a lien on a current homestead property to a newly purchased homestead property If the new one is not a homestead, then it is valid to

Subrogation – or transfer of mortgage rights Assignment – Mortgagee, by expressed written instrument, transfers the mortgage and the note to assignee Subrogation – Method of one, who pays the debt of another, to step into the shoes of the mortgagee through

operation of law; possible to transfer a mortgage this way The rights of subrogee cannot be greater that the rights of subrogor –

o Subrogor charging 6%I, subrogee can’t charge more than 6%

The right of foreclosure in a of a deed of trust, automatically goes with the subrogationo So you get the right of the lien to the amount of last mortgage (paid off) + the private right to deed of

right foreclosure, if the subrogee had that right. Subrogation is instrumentless and there is nothing to file – should get an expressed assignment 2 kinds of subrogations – failure to prove either just makes you an “officious intermeddler”

o Legal Subrogation : occurs when a 3rd party pays the debt of another in order to protect his own legal

right; - The one who pays it off is protecting his legal right 2 Scenarios

Suretyship: where one party stand secondarily liable for another’s debt Vendor/mortgagor Transfers the property to a 3rd party

Subject to : Where a mortgagor transfers mortgaged property to a 3rd party, subject to the mortgage, the vendor/mortgagor is still liable for the debt, but default will cause the 3rd to lose their land.

o If grantee of mortgage property take w/o actual notice of mortgage,

then he still takes subject to if the mortgage is duly recorded. But if he knows nothing of the mortgage, then 3rd party is

allowed to get away with fixtures he put in.o If the vendee/subrogator pays off the mortgage, then he is subrogated

into the shoes of the mortgagee Assume – when the mortgagor transfers the property to a 3rd party who

assumes the mortgage, the transferee has an obligation to pay the mortgage, the transferor/mortgagor has secondary liability.

o if the transferee has no money and the property is foreclosed on and

sold, and the proceeds from property is not enough, then the transferor/mortgagor will then be liable

o after payment, the transferor would have a legal right to collect from

3rd party – the seller would have the right, due to subrogation, to collect up to the amount he paid off

Surety: One party stands secondarily liable to another, ie. Law school loans - if the co-signer pays the debt then they can be subrogated to the position of the grantee

Vendor Transfers: o Conventional: the one who pays of the debt is doing so under an agreement w/ mortgagor

requires an agreement by the mortgagor that the person who is making the payments will have the rights of the mortgagee

Generally, if a 3rd party pays the entire debt of a higher creditor, the 3rd party is subrogated to the rights of the debtor and the original deed of trust

However, the subrogee must not be a volunteer, must have interest or agreemento Subordination – you ordain your right under the right of another.

Case, 1st mortgage paid off in part by the 3rd mortgagee, the 1st mortgage is subordinate to the 3rd mortgagee to the extent of the amount paid

Rights arising from Subrogationo Total Subrogation – all right are transferred to subrogeeo Partial subrogations – when party is partially paid of by 3rd party

1. No Agreement : no agreement b/w mortgagee and subrogee, mortgagee is superior as to unpaid balance, subrogee is sencondary as to amount subrogated

2. u of balance to subrogated amount; subrogee is superior as to amount subrogated3. Agreement of Equality . Mortgagee and subrogee are equal and must foreclose together.

Neither can foreclose w/o the other agreeing. Priority of 1st mortgagee, 2nd mortgagee, and a subrogee of 1st mortgagee

o Total subrogation – all rights of 1st mortgagee to subrogee, subrogee superior to 2nd mortgageeo Partial subrogation – 1st mortgagee and subrogee superior to 2nd motgagee, see 1,2,&3, above for

priorty b/w 1st mortgagee and subrogeeo Subrogee also advances additional funds to mortgagor w/ lien, these additional funds are a 3rd

mortgage Knowledge of a junior lien to the lien to subrogated to will not defeat subrogation if: - immaterial

o 1) There is an agreement, either express or implied; ando 2) There is no injury to another lien

Abstract of judgment (on lien record)o When you file suit on an unsecured debt, all you get is a judgment for money; no order to payo How do you get them to pay?

You get the clerk to abstract the judgment – To place in short hand form – certified by the clerk, and file it in the abstract of lien

judgment in the clerks office in every county in the state in which you think the owns or will own land

It establishes a lien on the land, but not on homestead property To keep the judgment alive, you must re-file the abstract of judgment every ten yrs – once

dead, you either collect or noto An abstract of judgment will attach immediately to property, but not homestead,

No one can get in front of a vendor’s lien, unless placed their by subordination Texas cases have held that if a mortgagor fails to pay taxes that he has promised to pay, the mortgagee may

treat the amount owed for taxes as part of the mortgage debt (mortgagee can collect more $ at foreclosure); if the mortgagor fails to pay the taxes, the mortgagee may pay them and collect this debt at foreclosure

o Assignment of tax lien is also possible for a 3rd part to secure payment of a noteo A foreclosure due to tax lien is judicially foreclosed on, or the tax mortgagee can get a note and a

DOT mortgage to secure the note. Law of Betterments: the right of a person how in good faith made permanent and valuable improvements to

the land believing that he owned the land but subsequently was proven wrongo C.L. – you were entitled to your betterments; b/w what land was worth before & aftero Property code – right of removal; if the improvments are removable fixtures, court may allow

improver to removeo Property Code – Claim for improvements; true owner gets judgment for land and improver gets

judgments for the improvement (the enhancement of the value) – the owner has certain amount of time to pay improver, if he doesn’t, then the improver has right to buy land. If he doesn’t, then we have a land owner and an unsecured creditor

Implied Vendor’s Lien A vendor’s lien arises by implication and exists at the time of the sale, and results from the sale on credit,

without other security, regardless of the subsequent inability of the purchaser to pay or of failure to compel him to do so by suit at law

o A vendor’s lien is implied every time the purchase price is not paid in full, except when there is an

express statement by the debtor (that he does not wish to retain a VL) or by his conduct (taking other security may lead one to believe that the vendor does not want a VL)

You can waive an implied vendor’s lien by taking other securities – you look at the intent of the parties. If you want additional security and your vendor’s lien you must express this otherwise you waive the implied vendor’s lien

The law, presuming that the VL was waived, requires no express waiver on the part of the vendor to destroy the lien (actions alone can waive a VL)

o Not expressed in writing, nothing to record & Possibility to have BFP- vendor sells B/A to vendee

& deed says nothing about notes. Vendee then sells to X, X can be BFPo If it’s not recorded, it exists only in equity and may be lost to a bona fide purchasero BFP requirements:

1) Good faith purchase 2) No notice 3) Present value 4) Appearance of apparent title

The party who asserts the implied VL has the burden of proof to show that a subsequent purchaser was not a BFP

If no consideration, or insufficient consideration is paid, w/o written lien, then an implied vendor’s lien is created

Possibility to waive the lien by expressed agreement or implication, but just b/c you don’t know you have a vendor’s lien does not mean it is waived

Vendee’s Lien A lien which exists in favor of the vendee when the vendor has not fully performed the K – convey all of the

property K for Pursuant to a K of sale, the vendor has not fully performed and the vendee has paid for all of it, or at least more than what the vendee received

A lien (in favor of the vendee) may be placed against a tract of land held by a vendor if the vendee paid purchase money for it.

The vendee establishes a lien on the property to secure payment, I don’t want the land, I just want my money back

IF vendee makes partial or full payment AND the purchase fails through no fault of the vendee (vendor is in default); Vendor must EITHER:

o Re-pay any money paid by the vendee (IF the vendee does NOT want the land conveyed but ALL of

the land promised)o Re-pay part of the money – amount of the land NOT conveyed (IF the vendee decides to keep the

land that was conveyed) The vendor must own the property 4 Elements required

o K for the purchase of propertyo The land to be conveyed is specifically recitedo Purchase price is paid but some of the property is not conveyedo There is a lien on the amount of money that should be reimbursed

Fraud and Vendee’s lien Vendor fraudulently sold land and used the money to pay off part of homestead; the vendee’s lien attached to

the homestead.o The homestead does not defeat fraud

Embezzlement: Court found that 20k of money which was fraudulently obtain, embezzled, was used to pay part of the homestead;

o May trace the money and can claim an interest in what the money purchased.o 3 possible remedies for the people who were defrauded:

Constructive trust enforced through sale Tenants in common Partition in kind

Owelty – a common law In partition (in kind) proceedings, the court may divide the property into shares of unequal value and fix a lien

on the larger share in favor of the party receiving the smaller share for the difference in value The difference in value is referred to as an owelty Considered a vendor’s lien (purchase price), so it’s allowable on a homestead All partitions are on value In divorce proceedings, the lien will be imposed against the entire property for the value of the owelty

o There must be a written instrument showing the agreement to establish the lien on the whole property

not an implied lien, may be an implied lien on ½ the property?Over Burdening a Homestead

When a homestead is sold and there is a mortgage on the land? Ex. 100 acres, all homestead by A – B is mortgagee of land w/ a blance of 100k; A sells west ¼ to C – the

value or price to C is 50K – C says that he does not want to be burdened by the mortgage, get a release of the lien with the money that I

gave you. A goes to mortgagee, B, and says I am selling the west 1/4 , please give me a release on the part that I am

selling, the west ¼ 3 things can occur

o 1 of which is: B “I like my 16% interest, how about I give you the release on the amount sold for a

nominal price” – this is what is called an overburdening of the homestead This cannot happen in a homestead, b/c the part of the homestead retain should be worth 75k,

but in this case, the land retained become the entire 100K – meaning the Although note is only 100k, the value of the total land should equal 200k (50k for

only ¼) So because it is a ¼ of land sold, and note on entire land is 100K, 25K should be paid

to B to release of the sold lot. But if 25K is not paid, anything due on the note, over the pro rata share of the land

will be unsecured debt;

if only 10K is paid, 75K on the is secured by the land and 15K will be considered unsecured personal liability on the

Over burdening of a homestead is a non entity – w/o a proportional pay down of the mortgage, you have an unsecured debt in the amount that you should have taken in a pay down

The Absolute Deed as a Mortgage Generally

o Oral testimony is not allowed to vary or contradict the contractual terms in a written instrument

unless proof of fraud, accident, mistake, confidential relationshipo Exceptions:

Things which are not contractual – things which are not contractual Proof of a deed absolute on its face is a mortgage – C.L. exception

But not in oil & gas leases Don’t have to show fraud, accident, mistake, or relationship Parol evidence rule does not preclude evidence that a deed on its face was intended to

be a mortgageo Ex – deed states, for an in consideration 10K cash in hand paid and transfer B/A – you now own b/a,

but never paid cash. Creditor wants to levy on the property. Recitation in deed is factual, not contractual – creditor can prove that recitation was not what actually happened and that it was actually a fraud on the creditor.

o An absolute deed is a conveyance of both legal and equitable title, with the superior title in the

vendee, and the vendor only retaining a vendor’s lien However, it’s been the rule in Texas that parol evidence is admissible to show that a deed,

although absolute on its face, was intended as a mortgage. For homesteads: not allowable, so, if they can prove that it’s a mortgage, your next

argument is that it’s void If it’s not a mortgage, then it’s a transfer If it’s void, then your land is safe (but you still have a personal debt)

o Since the recording of deed appears to convey apparent title, a BFP, W/o legal notice, is protected

against the vendor – notes on 162 – maybe a mortgage, but looked like a deedo When the consideration recited in the deed is contractual, there can be no parol evidence to vary the

terms of the doc Contractual – Consideration to be paid in the future

o When the consideration is a mere recital, parol evidence may be introduced to establish what the

consideration is Mere recital – lists nominal consideration or consideration that has been paid

o In determining whether an instrument is to be construed as an absolute conveyance or a mortgage

when there is no defeasance expressly agreed upon, equity looks to all the circumstances preceding and attending the execution of the instrument (and, sometimes, to those which have subsequently occurred)

Whether an instrument is intended as a deed or a mortgage is a question of fact

The nature of the instrument is resolved by looking at the intent of the parties The mortgage is considered invalid and foreclosure on the

o 41.006 – a backup of the constitution – it is considered a loan – when a grantor sells the land for less

then fair market value and then the grantee leases the land back to the grantor for more the Fair market lease amount

this is considered a Deceptive trade practice – and the mortgage is void and (c) exception – it allows the possibility for a less than value transaction – however, a

mortgage will not attach to the land.CH 2 - PrioritiesThe Doctrine of Bona Fide Purchaser for Value

4 requirements:o Apparent or semblance of Title

Voidable title – title arising out of fraud or misrepresentation/misleading; although grantor was deceived into transferring, he still meant to transfer

Forged doc give no right, BFP can’t occur Statutory Estoppel – the true owner is equitably estopped from asserting ownership b/c they

allowed stuff to happen Depositing property to one who deals in property of that kind. Legal v Equitable holder – if one get property from legal holder, grantee will then have

greater title than equitable holder.o Good Faitho Value – anything that has value

A Forbearance represents value Dictum in a case stated that an extension in time of payment constitutes value

o No Notice

Actual: real or inquiry (anything that would put a reasonable prudent person on notice) Constructive notice: comes from statutes

Can’t be a bona fide purchaser from a common thief b/c he does not have semblance of title Only way to void a title is to file a lawsuit to set aside the voidable title There is no presumption of marriage, so a BFP can take Community p. from only one spouse if BFP was

unaware of marriage and there is nothing of record to place BFP on actual notice

o Vital Statistics are not included in constructive noticeo If deed is in husbands name, then he has legal title and spouse house equitable title in ½ of property –

but BFP will prevail if not notice The recording statutes or notice statutes

o Notice or pure notice TX

X to A in 1999 and recorded in 2003; A not in possession and X to B in 2001, B never recorded; B is BFP in 2000 when the deed was transferred

o Race Notice –

Not only must you be a BFP, but you must record before any other interest does; ex. Above, B would have to record before A

The instant an instrument is recorded, it give notice to all in the worldo Race – Who go to the court house first

First recorded wino Period of grace – statutorily given amount of time after delivery in which there cannot be a BFP as

long as instrument is recorded in that amount of time Property code recording Statutes

o §13.001 – Must

A conveyance of real property, deed, deed of trust, or mortgage must be recorded or is void to a BFP; unless instrument acknowledged and sworn to as required by law

gives constructive notice and must be notarized o 12.001 – May

Instrument concerning real property or personal property may be recorded if it has been acknowledged

gives constructive notice and must be notarized in order to have a BFP, the recording statutes must have been ignored; recording is not necessary for a

valid deedo reason to record - to preclude subsequent right from the grantor from arising superseding the rights

of the prior granteeo you can file an affidavit stating you have equitable titleo If you purchase land as a BFP, it will do no good for the person who purchased the land prior to you

to records, and the only reason for you to record is so you don’t lose title to land to another BFP Rights due to inheritance (legal rights) used to not have to be recorded b/c there was nothing to record; Court

now said that a BFP can prevail over “secrete titles” – or inheritance titles.o Secrete titles, not easily discovered, vs apparent titles

o Old rule was that a legal title with no instrument to record could not be lost to a BFP, but now it can

because of an secrete title: Also, adverse possessor; b/c the law gave him title, there is nothing to record Possible to record an affidavit?

for a deed to be valid, it is necessary for the deed to have been delivered and signed; o In order to complete a delivery, 2 elements must be met:

1) The instrument must be placed within the control of the grantee; and 2) The instrument must be placed in the control of the grantee with the intention that it shall

become operative as a conveyance If there’s no intention, the instrument is inoperative and a purchaser from the grantee

acquires no title to the propertyo A non-delivered deed, no intention, is not valid and cannot be basis of a BFPo Case – court said that no intention to deliver the deed to the grantee so the grantee of the grantee

could not be a BFP b/c the grantee never had title, but if the grantor was GROSSLY NEGLIGENT in allowing the grantee to have access to the deed, then he could be estopped from

Allowing grantee to get deed – negligent; doing nothing to prevent the community from being mislead – gross n

o Fraud causeing the deed to be delivered = possibility of BFP; not true deed delivery = no BFP

Escrow issue:o Grantee commits fraud on the escrow agent – “I paid the grantor” and the agent give deed

Fraud on escrow agent = void title and no BFPo Fraud on grantor

A voidable title and possibility of BFP Burden of proof:

o The burden of proof will be on the BFP, the 2nd one claiming a new chain of title.

This is always true b/w 2 deeds, 2 deeds of trust, @ a deed and Deed of Trust (court holds deeds and deeds of trust similar)

o 1) If it’s a dispute between multiple deeds or deeds of trust, the burden is always on the second

purchasero 2) If it’s a dispute between a prior deed or deed of trust holder and a subsequent legal lien holder, the

burden of proof is on the prior claimant to prove that the legal lien is not a BFP the burden will be on the legal deed holder to prove that the subsequent lean hold is not a

BFPo 3) If it’s between a legal claimant and an equitable claimant, the burden is on the equitable claimant

regardless of order

o 4) If it’s between multiple equitable claimants, the burden is on the second claimant

Case: If you take an assignment of a note and do not record, the you may lose the land to a BFP, B/C you cannot have a valid mortgage with owing money. if someone can’t find the note, then the mortgage does not exists? – must record under may statutes

o I think this might be if the mortgagee transfers the note to you, but holds the land and then sells the

land Adverse possession and mortgages

o A claim that we wiped out the mortgage b/c of adverse possessiono Rule – you cannot run adverse possession against someone who does not have possessory right;o a lien holder/mortgagee does not have a possessory right only a security right and A. possession

will never run against them.o in order to claim adverse possession, you must show that the property was sold under the lien and

then.o So, maybe you will be placed in the shoes of the landowner, but there will be a lien/mortgage on the

land An instrument is recorded when it is handed to the Clerk; when the clerk accepts the instruments, even if the

frees are not paid.o So, if the instrument is recorded when it is handed to the clerk, and the clerk mis-records it, a

different record set, then it will still be considered giving notice b/c it does not mater what the clerk does with it.

Mortgages to secure future advances Future indebtedness: A deed of trust type of mortgage that contains a clause that any subsequent money loans

will also be secured by the land in the mortgage. Generally

o Future advances given under the existing loan will be given the same priority as the existing lien

A recorded mortgage with a “future advances clause” will be binding on all subsequent lenders

Irrelevant when the debt is incurred because it all relates back to the original deed of trust

Only includes debts that arise between the mortgagee and the mortgagor, but may be worded so as to include indebtedness purchased by the mortgagee that is incurred by the mortgagor from a 3rd party

Mortgagee cannot acquire the mortgagor’s debt unless:o The mortgagor consents; ando No injury would by incurred by any other party

A recorded mortgage which recites that it is given to secure future indebtedness that in contemplation of the parties may be incurred by the mortgagor to the mortgagee is a valid mortgage

o Not only valid between the parties to the contract, but as to subsequent purchasers from the

mortgagor as well Any subsequent purchaser from the mortgagor must take notice of the contract or agreement

as to future indebtedness, and any advances made or indebtedness incurred in pursuance to such contract, whether before or after the subsequent sale or incumbrance, are protected by a prior and superior lien upon the property

A future indebtedness clause only applies to indebtedness that was reasonably within the contemplation of the parties to the mortgage at the time it was made

even if 2nd mortgagee forecloses and sales, the 1st mortgagee can still foreclose and sale“Mandatory versus optional: Mortgages on the same land”

Positions:o Mandatory: the mortgage has a contractual obligation to advance money in the future; Mechanic and

material man’s lien: Superioro Optional: If there is a future advance it would be secured by the land: Not Superior

Mandatory and Optional: Superior In Texas it doesn’t matter if the clause is mandatory or optional.

o As long as the “if” is fulfilled

RULE: TX: The subsequent advancement of money was in the reasonable contemplation of the parties when the mortgage was made.

RULE: TX: A future advance clause will be superior only to monies subsequently loaned ONLY if they were in the contemplation of the parties when the mortgage was made.

o “Contemplation of the parties” is a question of fact proven by the evidence, not just the document.

Mortgages on After-Acquired Property A mortgage on blackacre which states that any future lands will be additional security for the loan

o Money loaned being secured by subsequently acquired land.o “After acquired property clause” is the mechanism used to secure the loan.

After-acquired clause makes all additional property acquired by the debtor “subject to” the original deed of trust

General Rule: There is no constructive notice of any transaction concerning the property in question which occurred by your grantor prior to the time your grantor owned the property.

Since the grantor had a mortgage with an after acquired property clause, the land he acquired later was security for his mortgage before he even took possession of it. Therefore, the subsequent conveyance to another buyer is valid and the buyer does not have constructive knowledge of the previous “grant” to the mortgagee.

As long as there is no ACTUAL knowledge and paid value, then buyer is a BFP. The deed of trust must be filed in the county where the property is acquired for the property to be included in

the clause The property attaches in the same condition as it comes to the mortgagor If there is a lien on the property then it becomes attached “subject to” the lien (mortgagee holds an inferior

lien)Fixtures

General rule: a mortgage covers all subsequently attached appurtenanceso Exception: the law of fixtures

Fixture personal property that is attached to the land, but remains removable (includes everything attached to the land or structures thereon with a view of enhancing the value of the realty and for the purpose of being permanently used in connection therewith)

o In b/t real and personal property

Without the law of fixtures, they’d be a part of the land, but with the law they can be removed as an article of personal property

If an item is deemed to be a “fixture,” then it will be included in any mortgage of the land, regardless of whether the mortgage expressly stated inclusion of the fixture

1917: Enacted a statute on filing fixtures to provide notice: Personal Property Affixed to Realtyo “The conveyance of land by deed containing no reservation of fixtures passes title thereto to the

purchaser, regardless of a parol verbal sale or disposition of such fixtures”o Fixture must be created and recorded in the land records rather than the personal property records.o To be valid:

Have to have description of property Show what the fixture is and that it is in fact a fixture Record it in land records; Not the chattel records

The term does not cover ordinary building materials incorporated into an improvement on land 3 Requirements of a Fixture:

o 1) Intent

The intent which controls is not the secret intent which may dwell in a party’s mind, but the intention which was either expressly declared by the parties, or which flows from the nature and character of the act, the clear purpose to be served, the manifest relation which the articles bear to the realty and the visible consequences of their severance upon the obvious and proper use of it.

o 2) Annexationo 3) Adaptation of the article to the use or purpose of the realty

4 Requirements for the Law to Apply:o 1) Intent to have the property remain as personal property even though it is attached to the soil

By law trade fixtures By agreement contract agreement precluding it from becoming a part of the land Not determined by a party’s “secret design”

o 2) Attachment (real or constructive)

Question of fact Sometimes, gravity is enough to sufficiently attach an item to the realty

o 3) Removable without injury to the freehold or the item

Permanent and unrepairable injury a question of facto 4) Proper notice – require that you file it in the fixture filling in the land record in the county where

the land is located your fixture filing is filed in the mortgage records of the county clerks office in the county in

which the land is located stating that the item in question is a fixture, but you want to keep an interest in it.

Fixture filing in the mortgage recordso You must file the fixture filling before the item become attached

Unless you are the supplier, then you have 20days to file it.o At least one owner’s name must be included in the fixture filing

Whether the item is attached is a q of fact If there is no interest in the item being attached, then when it is attached it b/c part of the land Example:

o By Contract: Draperies in the home and the seller and buyer agree that they are not real property, but

a fixture. Therefore, they do not go with the property. Any time you are in a mortgage situation and you are selling an item of property that will be fixed to land, you need to take mortgage which is sufficient to show that the fixture is not land.

o Window unit – court held that a window units were not fixtures, but chattel, b/c they were easily

removable – pull pug and remove As long as chattel is not included in K for sale, it can be removed; however, fixtures are part

of sale unless otherwise stated. b/c fixtures are part of land, & will go in the sale unless stated

In order to sufficiently file at least one of the OWNERS of the land must be listed on the fixture filing if the person purchasing the item is not the owner

o Like selling a water heater to the tenant; seller will not have a valid lien on the fixture if the actual

owner of the rental is not listed on the filing. Trade fixture

o When a commercial tenant can put into the building to conduct the businesso Court said, since the sign, trade fixture, cannot be removed w/o damage to the item, then it is part of

the land

Three requirements to determine if the item has been affixed to the lando The mode and sufficiency of the annexation – real or constructiveo The adaptation of the article to the use or purpose of the realtyo The intention of the party who annexed the chattel to the realty

if you are the lumber yard, and you sell nail to the contractor, you cannot get a remedy as a fixture filing, you must go to mechanic’s lien

o Ordinary building materials is not a fixture

At the moment construction begins, the fixture mortgage has not been filed, then you are behind otherso I guess if you sell an elevator to place in side new construction

Ch 4 – Mechanic’s and Materialmen’s Liens Two Separate and Distinct Sources of Lien; These two do not depend on each other

o Constitutional M&M lien and Statutory M&M lien

Constitutional: Texas Constitution Article XVI, §37o Mechanics artisans, and materialmen, of every class, shall have a lien upon the buildings and articles

made or repaired by them for the value of their labor done thereon, or material furnished therefor; and the Legislature shall provide by law for the speedy and efficient enforcement of said liens

Applies to situations where there is a direct relationship (K) between owner of the property and the person improving or repairing it

Covers laborers and suppliers with regards to “buildings” and “articles” Self-enacting does not provide for any recording scheme and essentially gives an

unrecordable lien Problem: bona fide purchasers b/c nothing to record

In order to protect himself, a mechanic should also file under the statute, which provides notice to BFP’s

Must be foreclosed judicially The term “improvements” is often used synonymously with “buildings” or “articles”

Permanent accessions to land that add valueo Applies to both real and personal propertyo Materialmen who make or repair buildings or things

o Can have a constitutional lien even though statutory lien cannot be had

the constitution provides for a mechanics lien and it is self enacting, does not need the statutory.

o The constitution does not provide for any recording of liens, so in many times the lien will be

unrecorded and in many time unwritten. problem w/ BFP; if not placed on notice (recorded) then possibility of BFP

o Derivatives under constitutional lien cannot recover

To have a constitutional lien you must have direct contractual privity w/ landowner Statutory: Chapter 53 of the TX Property Code

o If you are a general contractor, you could have both a statutory and a Constitutional M&M lien. If

you are below the contractor (sub-contractor, supplier, laborer, derivative of the contractor) and have no contractual relationship with the owner, then the owner may only be sued under the statutes, which must be strictly complied with.

o Requirements

1) Contract between owner and contractor 2) Accrued indebtedness (53.053)

Original contractor: debt accrues at end of month of notice of termination of contract or abandonment, completion or settlement

Subcontractors, laborers and suppliers: last day of last month in which labor or material furnished

Specially fabricated materials: last day of last month in which material was or would have been delivered or on material breach of original or sub-contract or termination by owner, contractor, of contract

Retainage claim accrues: last day of month in which original contract completed, etc.o 3) Notice requirements (53.056; 53.252)

Commercial – 53.056 1a) Owner debt (to contractor) no notice 2b) Subcontractor debt (to sub-supplier or laborer):

To contractor 15th of second month following each month performed To contractor and owner 15th of third month etc.

3c) Contractor debt (to sub-laborer or supplier) notice to owner with copy to contractor as in 2b above

Residential – 53.252 1a) Owner debt (to contractor) no notice

2b) All claimants under the contractor must give notice to contractor and owner (not later than 15th day of the second month following each month performed)

Retainage statement to owner (retain or be liable) Retain funds – 53.081 Time to retain – 53.082 Payment – 53.083

o 4) Affidavit of lien filed – 53.052

All commercial parties 15th day of fourth calendar month after day on which indebtedness accrues

All residential parties 15th day of the third calendar month after day on which indebtedness accrues

File in office of county clerk of land Contents of affidavit – 53.054

o 5) Copy of affidavit – 53.055

Copy by certified or registered mail to owner not later than 5th business day after earliest of date of affidavit is filed or after date affidavit is required to be filed. If debtor is not original contractor, then notice also to contractor

o 6) Get paid or file suit to foreclose – 53.154o 7a) Time to sue two years from affidavit or one year from completion whichever is later – 53.158o 7b) residential construction one year from last day to file affidavit under 52.052 or one year from

completion, etc. – whichever is later Retainage:

o Regular notice – 53.056o Contractual retainage – 53.057o Specially fabricated materials retainage – 53.058 and 53.253o Statutory retainage – 53.101

1) 10% of contract or value for 30 days after completion 2) Perfection:

A) Notices timely B) Files affidavit claiming lien not later than 30th day after work completed

o Preferences – 53.104

What is considered an inprovement: material must be used to build, repair, or attached to a building on the land. A fence is not a building If fencing was attached to a barn, then possible a lien would have been had A well rig is not considered a building for constituioal lien The Statutory lien is much broader

o Includes levy, embankment, or railroado Also includes personally fabricated material supplierso Includes architect, surveyor, or engineers who prepares preliminary sketcheso Includes Landscape artists

Creation of the Constitutional Lien If a mortgage is given upon buildings and nothing in the instrument shows a contrary intent, the lien will

attach to the land on which such buildings stand and which are essential to its use, or such as may be so designated as to show that it was intended to be used in connection with such buildings (thus, even though the K said nothing about the land, the lien attaches to the land)

As between the owner of the property and a mechanic, material man, or artisan with whom he contracts, it is not necessary that the statutory requirements of 53.005 and 53.052 be complied with, as the Constitutional provisions (Article 16, §37) are regarded as being self-executing (the lien automatically attaches)

Derivative claimants must comply with the applicable statutory provisions in order to fix and secure their liens; meaning constitutional lien cannot be had for derivatives

Creation of Liens on the Homestead Constitutional Scheme: M & M lien on the homestead– Art. XVI §50 (a)(5)

o 4 requirements:

1) The work and material are contracted for in writing, with the consent of both spouses (written and executed before any labor or materials are furnished)

2) The contract is not executed before the 5th day after the owner applies for any extension of credit (unless the work is necessary for immediate repairs)

3) The contract provides a 3-day rescission right 4) The contract is only executed at the office of a third-party lender, an attorney at law, or a

title company Statutory requirements for K for HS M&M lien - §53.254

o Written contract between the owner and the contractor

offered, accepted, consideration signed by contractor Must be signed by husband and wife, or just single person In writing Must state what is being contracted for

Specific enough description of the improvement to identify it Must give legal description of land of where the improvement will be located

Notarized Filed and recorded in the (land) county of where land is located

No enforceable binding lien on homestead until recorded Must be a 5day waiting period b/w the day you apply for credit and the day you sign the

mechanics lien Have a 3day rescission right K can only be signed: at office of 3rd party lender; attorney’s office; title company Contract executed before the material is furnished or the labor performed Other:

Must put in a warning next to owner’s signature line to give notice to the homeowner’s that they are entering into a binding contract

“Important Notice—this is binding, you could lose your home, know your rights and duties.”

If they fail to put this provision in, there will be a claim under DTPAo If the contract is made by an original contractor, the contract insures to the benefit of all persons who

labor or furnish material for the original contractor The derivates can claim under a statutory M$M lien

o A valid lien can be created upon the homestead for any improvements made upon the tract dedicated

to that purpose Permanent accession to the landAnything from a building to an addition to a building A building – yes; a fence around a yard – yes; a weather vane - no Limitation: the improvements must be of such a nature that they may reasonably and fairly be

used in connection with the proper use and enjoyment of the property as a homestead

Case: had lot and were living on a part. They decided to build a rent house on the other part; contractor received a mechanic’s lien for the building of the rent house, the lien covered the whole lot and now the contractor is trying to foreclose on the entire lot.

If the entire lot was homestead, then the contractor could foreclose on the entire lot, but the court decided that the rental property was not part of the enjoyment of the homestead and therefore the land on which the rental houses where build was abandoned as homestead property and the lien was established on rental land and not the homestead

The courts have consistently held that rental property will never be homestead use If the improvement, a single improvement, has both homestead and rental use

The courts even held that a 33unit complex was a homestead since the owners lived in it.

BUT it has to be a single structure and dedicated to single adult or family living A property can be homestead before it is occupied

The homestead intent is determine at the time the K agreement is entered into If the owner permanently appropriates a portion of the hometract for a use inconsistent with

that of a homestead, that act will constitute an abandonment of that portion of the tract for homestead purposes

A lien cannot be fixed on the homestead for improvements made on property which is not a part of the family homestead

Homestead rights may not be construed so as to avoid or destroy pre-existing rights Any right existing against the property prior to the time it becomes a homestead will

be superior to the homestead claim when the property has not become a homestead at the execution of the mortgage, deed of trust or other lien, the homestead protections have no application even if the property later becomes a homestead

Ex: HOA assessments A homestead right in real property cannot rise any higher than the right, title

or interest acquired by the homestead claimanto Courts have held that Homeowner’s associations are a contractual right establish prior to establishing

the lot as a homestead, and superior Can foreclose, but req a lot of notices and there is a right of redemption in favor of the

homeowner You cannot have an equitable lien on a homestead, b/c the statutes tell you how to perfect

o Case: falsely backdated K before material were there to establish M&M lien – not valid and not

through equity eitherPartial completion clause – a clause in the contract allowing the contractor to recover the value of the amount of materials/labor provided, even though the contract is not completed

Allows for a lien to exist even though K not completed Lien equal to the amount of the K – the amount to finish the job A contractor can only recover under a partial completion clause if the contract is completeable must be

able to complete the construction according to the terms of the contract In order for the part performance clause to be valid and enforceable, there must be evidence of the cost of

completiono FOR HS ONLY:

In general, you cannot have a valid lien on a homestead unless you have substantially completed the contract

w/o a partial completion clause, if you do not complete the K then you have no right to any collection; a personal debt will be established, but on lien against the homestead will be created

w/ a partial completion clause allowing for collection of price-work needed; but the building could not be completed

o court said – if K cannot be completed to terms, no lien can be had against homestead, but

homeowners will be personally liableo Case: pay 120 day if completed at or before X date + partial completion clause – both can exist

Proper Procedure to Finance HS (usually only for HS, but can use for other types of buildings): General: the lien against a homestead cannot start w/ mortgagee; owners must enter into a K with Kor, which

establishes the lien, then Kor will wind up assigning that lien to the bank. Contract between owner and contractor

o As req

Interim Financingo The contractor assigns the contract to the interim financier, Bank, while they supply funds during the

building, money dispersed in different installments.o An M & M contract can not be open-ended. There must be an actual figure so you must estimate the

approximate cost of putting up the building. Permanent Financing

o The owner to be goes to a permanent financing and secured a loan commitment which essentially

says that when the building is finished, the permanent will loan the money over a long period of time.o At closing, the permanent financier must get by assignment the M & M lien from the interim

financier.o Permanent financer cannot get a lien that is more than what the original K was for.

House is finished.o Contractor has shown all bills paido Permanent financer sends to closing the loan they promised with note and deed of trust mortgage.o To make sure permanent financer has lien on HS, an assignment of the M&M lien must be made to

permanent financer or he has no lien on HS.o Deed of Trust mortgage is to allow private foreclosure.o New note is given as extension of old one.o Eventually HO’s will get a release, once they have paid off note and will own the property.

Statutory Mechanic’s Lien

If you provide fixtures to a building, then a builder must follow all of the statutory guidelines. Statutory M & M lien: In order to perfect a lien under the statute:

o Must have a Contract between an Owner and Contractoro Accrued Indebtedness (§53.053)

If someone is not paid, they must prove that the debt not paid for must be accrued. For the original contractor, the debt accrues at the end of the month when the contract was

completed, abandoned, or settled. For the subcontractor, laborers, or suppliers, it is the last day of the last month that they did

something (i.e. furnished labors or materials) For the specially fabricated materials, built off the premises and then moved in to the job site,

it is the last day of the last month which material was or would have been delivered on the premises had there been no material breach.

§53.053(e): Right of retainage after accrual is proved. When rights accrue (right to demand) Last day of month on which original K was completed.

o Notice Requirements (§53.056)

Must give notice while in the process of perfecting the lien. Certain people must give notice to the owner:

Original contractor: No notice required; A contractor can perfect a lien against the owner by simply proceeding with the affidavit. Have to have debt but no notice. Law presumes that owner ought to know whether he has paid contractor.

Laborers and Suppliers (below subcontractor—sub-subcontractors): Must give notice to the contractor by the 15th day of the 2nd month following each month of performance.

Give notice to contractor AND owner on the 15th day of the third month if it still hasn’t been paid. Maximum time.

May give notice anytime before this as well. Contractor debt, anything owed by the contractor to the subcontractor or laborers or

suppliers, must give notice to the owner with a copy to the contractor within 15th of the 3rd month after you have performed. You are one to whom contractor has made agreement with and you have not been paid.

Notice Retainage (53.056 and 53.081) (also statutory retainage) If you wish the owner to withhold funds from the contractor in order to pay

subcontractor, you must tell the owner to hold the funds and the amounts. Must give to owner after the debt has accrued in order to tell the owner that he must

retain certain fund. If not retained, then the owner will also be liable for that amount. Intends to trap funds.

Cannot trap funds which have not been paid yet. Each pay period sets up new category of claimants under notice retainage.

Statutory Retainage (§53.081) Statute tells owner that if he is given proper notice retainage, you keep funds. Owner hold funds until either contractor and claimant come to owner with an

agreement, or owner may file suit to establish his debt. If owner doesn’t do anything at that time to make payment, owner still has priority over other claimants equal to all others in same payment period.

General Rule: The owner does not EVER have a greater liability than the contract amount.

Exceptions: Not abiding by a notice retainage. §53.101: Not retaining 10% of the funds at the end of the contract period for

30 days in order to give everyone a chance to bring forth their claims Contractual Retainage

Go to owner before work is done and tell him you are doing certain things to make sure you get paid

§53.057o Affidavit of Lien Filed (§53.052)

The claimant wishing to perfect the lien must file an affidavit. Everybody has the same day—15th of fourth calendar month after which the indebtedness

accrued. Filed in M&M lien records in the land Record of county in which property is located Contents of affidavit--§53.054

o Copy of Affidavit (§53.005)

Must give copies to the owner not later than 5th business day after the earliest day of which the affidavit is filed or required to be filed.

If the contractor is involved directly (not perfecting the lien), then you must give a copy to the contractor.

To be certain, give copy to everyone above you.o Get Paid or File Suit to Foreclose (§53.154)

Perfecting your lien gives you the right to secure payment. If the owner or contractor fails to secure payment you file suit.

M & M lien can not be foreclosed in a deed of trust Must be judicially foreclosed because you are probably not the only claimant. To get complete relief, all claimants come to court and court sorts out priorities and gives

judgment in accordance with such priorities. Bring suit by…

o Limitation (§53.158)

Must bring suit within 2 years of affidavit date or 1 year from the completion (end) of the contract.

53.104 – preference statuteo as a general rule, all Clements under a mechanic’s lien statute have equal priority – time is not an

issue, everyone is equal.o Only 2 ways to become unequal and get ahead

53.014 – preference given to laborers, paid first but laborers among themselves are unequal

difference b/t mechanic’s lien and ucc filing issues supplying a fixture, to a contractor, then you must perfect according to the

mechanic’s lien statute; if you take a fixture filing, and filing it as a fixture, then you get nothing – just against the subcontractor not against the home;

having perfected under the mechanic’s lien statute however, you have the rights as if it was a fixture filing – the 1st priority to remove the fixture and sell it.

Preference of notice You have a priority over people subsequent your pay period but equal to all people in

your pay period You can give to the owners a trapping notice – Building – K 100K Jan 1 – Kor is entitled to 10K

But some subcontracors under this area has not been paid and have given owner notice to w/o funds. Owner has to hold back that amount

A for 10K; B for 10K – there is not priorty b/w these two because there is enough money due to the Kor

o Must propertly give traping notice to hold back funds

Jan 31 – Kor is entitled to 30K Here in stead of giving 30k, HO only gives 10K

Any subcon – 50K of trapping notices in this pay period, short moneyo These people in this pay period are equal ad will receive a pro-rata

share of the money. The deficient will then go into the next pay period.

o And the deficient which is carried over the next period, but will not

have priority over the next period – they will just receive their pro-rata share

Mar 1 - Kor is entitled to 30K Apr 1 - Kor entitled to 30k; paid 20K and held back 10K

Case:o Supplier and labors did not perfect lien provided material and labor, but did not perfect lien; they

have a valid claim against the Kor, but no lieno A trapping notice must use specific language requiring the owner to hold back funds from the Koro Owner can never be liable for more than K amount if everything done correctly.

Unless no retainage, then K amount + 10% statutory retainage + Trapping noticeso Court says that everyone stands on their own, cannot rely on someone else perfecting their lien to

perfect yours B/c HO must retain the statutory 10% for 30 days after completion or termination of K,

o you must perfect w/in 30days of the completion or termination of the K

every derivative must perfect w/in 30dayso If you give your notice after the K is terminated, and you cannot fall w/in the statutory 10%, then you

get no lieno if the owner does not owe the contactor money at time you subcontractor perfects, then you don’t get

money Wilson case:

o Today, under 53.056(b), derivatives under the subcontractor must give notice to the owner,

contractor, and subcontractor so that the contractor will not pay subcontractor when supplier remains unpaid. Therefore, this would not be a problem today.

Or else the owner would not have to pay the subKorRetainage Requirements

Types of retainageo Notice $53.056o K retainageo Statutory retainage – required to hold 10% for 30 days after the completion to pay subKor

Assignment of the M&M lien by a title assignmento The owner will not be liable to a subKor or derivative for any sums for which the owner does not owe

the Koro Rule: if the contractor assignes the M&M lien to a bank (interm financer) then the owner does not

owe the Kor anything, he owes the bank. Since the HO does not owe the contractor anything, HO has not liability to Kor or subKors, the no derivative can have a claim against the HO after the assignment

Accept for the 10% retainage, but that would just be a personal liability if the lad is a homestead

Assignment of M&M lien as a collateral securityo If the assignment by the Kor to the lender is a title assignment, then it is true that the owner owes the

lendero But if it is an assignment as collateral security, then the kor still owes the note. for the Collateral

security has not been foreclosed on, then the derivatives can still have a claim against the HO Statutory provides that the HO is supposed to hold Statutory retinge for 30days, if not claims are perfected,

then HO can pay Kor the 10%;o But, derivatives have up to 4 months to perfect claim. If the HO retains 10% for 30 days, then no

claims possible against the 10% aftero But if the HO does not retain for 30days, then derivatives have 4 months to perfect

the Derivatives, suppliers/subcontractors, are only due the 10% retainage of the total price of the K under which they performed. Not 10% of the total of all K’s

o And the supplier is limited to get only 10% form the owner, if other funds were not trapped.

Coke Lumber v. First National Banko Facts: an Interim financer and held a deed of trust and note which they got by assignment. The bank

advanced money to the Kor for the construction. The suppliers did not get paid gave notice and filed an affidavit and the bank still advanced money to the Kor.

o Court said:

When the K is assigned by the Kor, there is no liability on the owner w/ regard to the derivatives – b/c the owner does not owe the Kor, he owes the bank.

The bank has no liability to the derivatives - The court said the interim financier does need to act as a trustee for the derivatives.

o The suppliers also argued that their lien was prior to the bank’s deed of trust with respect to the

advance made after notice was given to the bank. The court said that deed of trust, which secured the future advances was filed prior to the

supplier delivering material and therefore the bank had priorityPriority Statutes:

No debt, no lien Inception – 53.124

o “The time of inception for an M&M lien is the commencement of construction of improvements or

delivery of materials to the land on which the improvements are to be located and on which the materials are to be used.”

Inception of the contract is when something is visible upon the land with regard to the performance of the contract

Visibility: 2 possibilities 1) Commencement of construction

o Conducted on the land itselfo Visible upon the land; ando Constitutes either (a) an activity which is defined as an improvement

under the Texas statute or (b) the excavation for or the foundation of a building or structure

2) delivery of materialso Requires delivery of material to the site of constructiono Such material must be visible upon inspection of the land; ando Such material must constitute either (a) material which will be

consumed during construction or (b) material which will be incorporated in the permanent structure

“Inception” was created by the courts in order to protect sub-contractors and their M&M liens. Inception means that the M&M lien “relates back” to the time when the work commenced or material were supplied

Inception does not relate back to the time that the original contractor and owner signed the construction contract

There is one common lien, and all of the M&M liens relate back to this time, regardless of when each contractor performed his work

A derivative’s inception is the day of their contract, not the day on which construction began

When the erection of any building or construction of any improvement is begun, that constitutes the inception of all subsequent liens

the “inception” of mechanic’s and materialman’s liens cannot relate beck to a time prior to the vendor’s lien

The MM Liens “relate back” to the inception of the General K BUT if there’s NO General K, then each relies on individual dates of inception

If there’s a single entity performing under a contract with the owner, all claims by that entity will relate back to the first day of performance

Note: 53.121 (e) Inception for landscapers and those hired for demolition work is the date of recording of an affidavit of lien (53.052)

Priority will be based on date of recording Owner cannot be a general Kor, everyone who would be a subKor are really original Kor. Inman v. Clark

o Facts: Purchasers of townhome claim to be bona fide purchasers because they did not know of

improvements being made. Kors claim purchasers did have constructive notice because they saw the construction. Owner of the townhome was the one making improvements. Claim is coming from supplier who supplied materials to owner.

o Issue: Whether the supplier was a original contractor rather than a subcontractor?o Yes, he was an original contractor. The owner cannot also be a contractor.

o Whether a M & M statutory and constitutional lien can prevail over a subsequent claimant?o Yes.o Since Dawson was the owner, he could not be a contractor. Therefore, the suppliers, Inman, are

original contractors not a subcontractor.o The original contractor, Inman, filed and perfected statutory lien and also had a constitutional lien.

(He did not give notice to the Clarks (purchasers) but he didn’t have to because he wasn’t in contract with the Clarks)

o The constitutional lien could have been lost to a bona fide purchaser. However, they were not bona

fide purchasers because they were on constructive notice when they wandered around the house while still under construction

Case:o Facts: Owner and Kor entered into note and assigned note to interim bank as collateral security. Kor

then abandoned project. Subcontractors gave notice of unpaid bills sending notice to owner. Notice to owner didn’t have statutory warning to retain funds. Bank argues its assigned lien from contractor has first priority.

o Issue : Whether a bank which has an assigned M & M lien from contractor is first in priority for the

retainage over subcontractors?o No, the bank is in the shoes of the Kor, and SubKor always come first.o If notice doesn’t contain the statutory warning, the lienholder doesn’t trap (owner must hold back

money from general contractor) the funds but still can establish a lien under the statutory retainage (10%). Notice and perfection that subkors did was not sufficient to trap funds under noticed retainage but was sufficient to obtain a lien under statutory retainage.

o The subcontractors are entitled to priority in the statutory retainage and upon the premises.o The premises will be liable if the owner paid out the retained 10% statutory retainage.o Because they didn’t give notice, they have no claim to anything outside the 10% that the owner is

supposed to retain by statute because they perfected their lien according to statute but not noticed retainage.

o §53.156: Allows a collection of attorney’s fees in a contractual relationship, but since there isn’t one

in an ower/subKor situation, not Attorney’s fees Priority over other liens – 53.123

o Any prior lien on the land before the inception of the mechanic’s lien is superior to the mechanic’s

lien as to land and improvements, but the mechanic’s lien is superior as to all removable (fixtures) Thus, if there is a prior deed of trust on the property, the M&M lien will be wiped out by

foreclosure of that deed of trust o Equality of Mechanic’s Liens – 53.122

Perfected mechanic’s liens are, for the most part, on equal footing All subcontractors (as long as they have complied with the statutes) share pro rata in the

foreclosure proceedso As b/w Kor & derivatives; derivatives com 1st

o Between the third party lender and the derivatives, the derivatives had inception of their lien when the

work began, not when they individually worked or supplied. The third party lender did not come until after the work began.

o Therefore, the third party lender is inferior to all of the derivatives because the loan transaction was

not closed until after some construction had been done on the premises.o The third party lender could have established a prior lien if they had closed the contract with the

owner BEFORE the construction began. It is impossible to be a prior lienholder after work has begun.

o What do you do with your lien?

§53.154: A requirement that the lien be foreclosed judicially. No deed of trust foreclosure for M & M lien because there are probably many

claimants and the court must sort out who gets priority. §53.155: If the improvement is sold separately, if removable, the officer making the sale shall

place the purchaser in possession. The purchaser now has the right to bring in movers and haul away the improvements.

Reasonable amount of time from date of purchase to remove. If not sold separately, then the lien is on the entire premises.

Overviewo When there are newly constructed improvements on the property, the purchaser is under a duty to

determine whether there are any outstanding mechanic’s and materialman’s liens against the propertyo An M&M lien will always be filed after the work and labor has been performed because the M&M

lien is only filed if the sub-contractor does not get paido Prior lien is superior as to everything except removables

A prior vendor’s lien or deed of trust lien is superior to a subsequent mechanic’s lien, unless the mechanic’s lien is given priority or equality by statute

Mechanic’s liens do not have preference over any lien or encumbrance that burdened the land prior to the inception of the mechanic’s lien

Mechanic’s liens do not have preference over any lien or encumbrance that burdened the land prior to the inception of the mechanic’s lien

Case:o Genrally, nothing would get infornt of a vendoer’s lien, b/c that is how you got the property; but here

he subordinated the lien to the DOT,. So it is inferior.o Also, work is the method of determining inception of the M&M lien, but it is the start of work under

which your are contracted for, not the start of work for ther, prior contracts. only 1st work under your K

Case: delivery of good first from X corp.; then a DOT; then delivery of more goods from X corp.o The lien for the delivery of ALL the goods is superior to the DOT; the delivery/works all relates to

the 1st day of work/goods for the k working/supplying under. o The lien from X corp. is superior to the DOT b/c the inception dates to the 1st delivery. o The owner was the genKor, not possible, but even though there was not a single K the delivery guy

was working under, all his performances related back to the 1st one S53.158 – the statute of limitations for filing a lawsuit

o Suit must be brought to foreclose on a lien

w/in 2 yrs after last day in which you may file the lien affidavit Or 1 yr after termination abandonment, or finishing of the job

Which ever is latero For a claim arising from a residential project

w/in 1yr of last days able to file a lien affidavit or 1yr after the completion of the project.

Case: No liens can attach to the land until the person making the K actually owns the land; strongest lien is a vendee’s lien unless he subordinates it.

o Foreclosure and sale under a superior lien or mortgage extinguishes ALL inferior mortgages and

liens. This extinguishes the lien, NOT THE DEBT.o If the owner does not own the land, the owner can not contract into a construction agreement.o Cannot have inception before owner owns land and vendor’s lien is superior unless it is subordinated.

2 ways to get M&M lien; visibility & file the Statute now gives people who perform before construction their own lien

o Architect, engineer, surveyor who contracts (written) w/ owner to work on stuff for the actual

constructiono Worker/supplier or landscaping including retention pond, berm, retention pond,… (written K)o Laborer/supply for the destruction of a structure via a written K

More info on M&M lienso M&M lien must have visibility – according to the statute

Acurring in to ways Deliver of material to the premise for the construction Actual building; work directly related to the building

So, if you start work on the last day before completion, then your time of inception will relate back to the time at construction of the K

o In direct K relationship with the owner.

Since they are in direct relationship w/ owner, then there is no need for notice b/c they already know

But the day of perfection will be the day of recordingo Work/supplies must be in directly related to the construction of the structure, if not then no lien

Batter boards used to pour the slab – not lienable material

o Case: On the Irving property, each of the acts that the contractor did were satisfactory to show

inception. Therefore, inception of M&M lien was at visibility which was before the DOT mortgage and all Kors under that general K, no matter when they perform (could be six months later), relate back to that initial inception date prior to DOT mortgage (except for amount used to pay off vendor’s lien—for that amount mortgage co. is superior). – b/c of subrogation

o Homestead Note: The recording of a M & M lien under homestead law would not be inception but

visibility will work. It is unclear whether filing of a contract would produce inception. Ownership –

o In order for the M&M lien to be perfected, the owner must have some interest in the property (legal

or equitable)o A contract right is sufficient to get a M&M lien against the contracting party (not the original owner)o In order to have a lien against the land, you must have a lien against the ownero Option K - Issue here: - To they have a lien against the property?

Dollar inn had only a K right to purchase the property. This is good enough for M&M lien K to be enter into against the purchaser, not the current owner, BUT only if the property is actually purchased

If the property is not purchased, then builder does not have a lien against the propertyo Lease holds – K will not have any rights against the landlord, unless the landlord enters into the K.

The extent of the Kor right is one month of the amount of rent Enter into a K of w/ a leasee – you get no right to the property and you have no greater rights

then the leasee But, if the lease holder fails to pay, then the kor can get the right of the lease and sell the lease

right for repayment. In ½ the states there can be no sale lease hold w/o the landlord permission.

Case: Fixtures & priority:o Facts: Hammon held DOT and vendor’s lien on property. McMullen then acquired M&M lien on

premises for concrete and cement work done by him.o Issue: Who gets priority?o Fixture

Contract or other relationship that keeps it as a fixture. Under an M & M contract, there is a contractual right to remove the fixture if the M & M is

paid. Requirements

Contracto If you are operating, working or supplying under M&M K, the only

way you can perfect as against a fixture is through the notice statute.o If you put in fixture independent of K, then you must file fixtures

filing in land records where land is located and fixture is attached together with proper description of land and state at least one person who will appear of record as owner of property.

Must be some sort of attachment that makes the improvement part of the soil Must be removable without injury to the freehold

o A prior existing mortgage on the property is superior to any subsequently attaching M & M lien.

The vendor’s lien is clearly superioro The deed of trust is superior as to the land because it is prior in time.o The M & M lien is superior as to the improvements IF the improvement is removable.o If the improvements are NOT removable, then the deed of trust is superior to the M & M lien.o In this case, the concrete and cement work were not removable without injury to the freehold.

Therefore, the deed of trust is superior. Shame K rule – K that don’t exsist – 53.026

o If there is connection between the owner and the contractor so as to make them the same entity

(subsidiary) and then they enter into an M & M contract, it will be treated as a sham contract so that anyone who deals with the contractor is dealing with the owner.

we treat to claims under the Kor as they are in relationship w/ the owner and the derivatives under the kor don’t need to provide notice to the Kor, since the owner controls the kor. – just give notice to the kor

A general contractor dealing with the owner can have BOTH a constitutional and statutory lien.

A derivative can only have a statutory lien. Don’t need to give notice to the kor, just to the owner of the property. Also, don’t need to give a trapping notice

Fixtures v Chattel: - what is the difference b/w chattels and fixtures chattels cannot be under the M&M lien as, such but Fixtures can and are considered a removable form of real

property. Mortgage is superior to everything but fixtures If item in the house are Chattels, then to have a lien on them you must perfect as per the UCC; they are not

included in the M&M or mortgage lienso Whirlpool supplied refrigerators and ranges, and the court said these are chattel and have nothing to

do w/ the mechanic’s lien statute Court said dishwashers and disposals (built-ins) are fixtures – attached to the land and are removable w/o

damage - the supplier can have a lien on them.o Since they are fixtures and whirlpool has perfected their lien, they have a right to remove these and

Whirlpool Test: Even though the M&M lien is second to a vendor’s lien or deed of trust, it is still given priority over the pre-existing lien if, and only if, the materials that were provided for the improvements can be removed without material injury to 1) the land, 2) the existing improvements, or 3) the materials themselves

o Material injury is a question of fact; some factors to consider:

The manner and extent of attachment to the land or existing improvements; the extent to which removal would necessitate repairs, modification and/or protection of the land or existing improvements; the stage of completion of improvements under construction at the time removal is sought and the function of the improvements sought to be removed

o A constitutional lien on manufactured goods is available to the manufacturer only upon articles that

are made especially for a purchaser pursuant to a special order and in accordance with the purchaser’s plans or specifications

Removability: Whether the supplies are removable as to cause a lien on the improvements?o Test:

Injury to the freehold or object Sign is buried 12 deep – this does injury to the land & existing improvement

Cutting the sign, does injury to the pole; digging it out injures the land Contract Attachment

o The improvements made under a M & M lien and therefore may be removed, foreclosed, and sold in

order to recover the money owed.o Concrete components of prefabricated building are removeable.

Payment allocation HO said, well we paid you money, the money we paid you paid off the fixtures and the money you haven’t

received was for the chattel In order to assert payment, you must plead payment

o Rule of TX procedure – you must plead that your payment paid off what items

did plead what the money payed was for and whirlpool got to specify where the payments went.o So if the payee does not allocate the money, then the payer can allocate where the money went.

General Rule:o Debtor must prove their intent to have payment applied to a certain article.o If debtor can’t prove, creditor must show that they applied the payment to specific articles.o If neither can show that payment was applied to specific articles, then the payment is made on the

oldest debt.Footnote: Contractor’s right of removable with regard to materials put in by subcontractors or derivatives: L & N Consultants v. Sikes

The contractor wants to remove certain removables in order to cover the debt owed to him. The rule for contractor and subcontractor are different.

o The contractor has a general right to remove all removables to pay Kor’s entire debt—not just those

that might be attributable to the debt of the removable—whether supplied by him or subcontractors.o If supplier wants to remove an item, it can only be to cover the debt of that item—there is no general

lien to remove anything.o Supplier, as to specific item, is superior to Kor. Supplier has right to remove built in and sell to fulfill

his debt. If there were no supplier, Kor would have right to remove to fulfill his debt.Can the lien amount include the Sales Tax issue:

YES, The statute make the sales tax a part of the sales price and the sales price is what the lien is forBonds:

Generallyo 2 kinds of bonds: indemnity and payment/performance

1)Indemnity bonds – 53.171 Guarantees that something will be done (usually payment); indemnifies against a lien

which has been controverted If there’s a liability, the bond will take it up If there’s a perfected mechanic’s lien, any person may file to indemnify the

lien if the materialman informs the owner that he has NOT been paid, then the owner may ask the contractor to post a bond – allows the contractor and materialman to dispute whether the MM is entitled to payment

o Ex: supplier gets bond to cover retainage paid by owner

If they’re not entitled to the money, it will be paid back through the bondo If the bond has to pay, the bonding company will make a claim for

repayment 2) Payment or performance bonds - Hardeman Act– 53.201 –to pay liens or claims

Given by contractor to owner to protect owner and derivatives If the contractor defaults, the bonding company comes in The bond does not protect the contractor 3 “requirements:”

o 1) Sum equal to the amount of the original contracto 2) May be recordedo 3) Derivatives claiming against a bond still must perfect their lien,

but the requirements are easier: Notice given to contractor and surety (treated as owner)

No trapping notice or statutory retainage required Don’t have to file an affidavit If notice is given to the owner, the owner should send the

notice to the bonding company (but failure to do so won’t defeat the claim) – 53.207

53.208 – action on the bondo Claimant can sue the principal (contractor) and surety either jointly

or severally if the claim remains unpaid for 60 days 53.206 – perfecting a claim against the bond

o 1) Debt accruedo 2) Give proper notice

If the bond is recorded at the time the lien is filed, the claimant must sue within 1 year

o If the bond is not recorded, the claimant must sue on the bond within

2 years If the total claims against the bond exceed the amount of the bond, there’s a

pro rata share nobody has priority 53.211 – attempted compliance (if amount is less than the contract price)

o If it’s a Hardeman Act bond, even if not in full compliance, the court

will ignore the provision which precludes the application of the mechanic’s lien statute

o The courts will not use attempted compliance if it defeats the bonds

Beneficiaries will win if the court can make it happeno There may be more than one original contractor. If the bond is not executed by such other original

contractor, the owner and his property are not protected; and, assuming he has taken the necessary steps, the other original contractor, as well as the contractor executing the bond, may enforce his lien against the property.

One original contractor (and those contracting with him) cannot recover under a bond executed by another original contractor

o It is arguably possible that if the bonding company issues a bond for the entire building, all

derivatives might have a claim against the bond (but not the general contractors) through estoppel If you have a bond, not need for trapping notice or retainange notice to HO

o How to perfect generally? – where there is not bond

Debt accrued Properly gave statutory notices Must file the affidavit of lien

o How do you perfect when there is a bond

Debt accrued Must give proper notice – except you give notice to the Kor and the bonding company that

you have not been paid But if you give notice to the owner instead of the bonding company – then the owner

shall forward the notice to the bonding company and the failure to do so does not have a disastrous note

o this statute states that if you are under a contractual retainage then you do not need to hold back

funds.o If there is a bond properly done under the Hardeman Act, it relieves the owner of all obligations of

retainage. The owner has no notice or statutory retainage obligation and relieves all claims against him;

the owner has no retainage requirements. The bondsman was liable for entire unpaid balance of the subcontractor

Due on sale clauses in mortgages or the due on transfer clauses If this property is transferred by the mortgagor, the entire of the indebtedness on the mortgage is immediately

due and payable – the lending of money on specific requirements. Texas S.C. held that the clause is valid – that an absolute due on sales clause is a restraint on alianiation

o If the mortgagee does not have a valid reason for enforcing the clause, then not goodo But if the purpose of the clause is to make sure that the new buyer is credit worthy and will not trash

the property, then the clause is valid. An example of a clause being a restraint on alienation – b/c it was a blanket requirement that any transfer by

the mortgagor be agreed to by the mortgagee In a normal sale the owners would buy the land and the sellers would still be liable for the mortgage If the transfer is by assumption, then the transferee steps into shoes of mortgagor, but assumption is not valid

until mortgagee agrees – and a mortgagee can change the terms – so due on sales K are not really needed in an assumption b/c the mortgagee can make requirements in order for them to agree

o But is the mortgagee changes the terms, then the seller is not 2nd liable

Transfer and Assignments The mortgagor and the grantee must take care of the mortgage in some way b/c it is superior to the transfer

o Pay off the mortgage (by grantee of 3rd party financing)

Grantee gets loan to pay off mortgage or pays cashSubrogation of the 1st mortgagee to the 2nd mortgagee possible or exoneration of the debt

o Assume mortgage – the grantee assumes the liability of the payment of the mortgage (takes mortgage

as part of consideration): Requires consent of mortgagee. Grantee has both land and personal liability The seller is 2nd liable (personally) for the mortgage

Surety or guarantoro Takes subject to mortgage - Mortgagor continues to hold and pay the mortgage and the grantee has no

obligation towards the mortgage personally However, the buyer land liability: If mortgagor doesn’t pay mortgage, then grantee will lose

the land by foreclosure – but will not be liable for anything over the land The seller will be personally liable for the debt

Mortgagor v assuming grantee o Grantor – 2nd liability, pays debt off, exoneration of the debt for him, and get subrogation – then can

sue the grantee directly on reimbursement theoryo Since subrogation carries the right of foreclosure, grantor can then foreclose on lando Successive Assuming Grantees

each assuming grantee is liable, the last one is liable primarily and each is 2nd liable in inverse order.

A subject to transfer in the middle of an assuming grants does not stop the liability of the assuming parties

Possible to have land liability onlyAn agreement in the mortgage that the land and land alone stands go for the debt – the only way to get around a deficiency problem in TX

Land liability onlyo An agreement in the mortgage that the land and land alone stands go for the debt – the only way to

get around a deficiency problem in TX Case: The Court held that where a contemporaneous oral agreement and the deed show no liability, the

implied assumption can not be sustained. – Assumptions must be clear Grantor A owes T, granted to grantee B subject to, who granted to grantee C by assumption

o So, Grantee does not owe T, but it is possible for C to owe T – o It is possible to assume an obligation that the transferor does not haveo Only assume principal and interest, not attorney’s feed

BUT - That an assumption of a debt must be made to the one who owes the debt, not to someone else –o Debt of A, C tells B he will pay it off. A cannot rely on this

If you transfer land by assumption, then you have a 2nd liabilityo You can be released form 2nd liability by

A K of novation – a release – you go to the mortgagee asking for a release for X dollars

This is a 2nd K so there needs to be some consideration Or there is a change in the obligation – the assuming party and the mortgagee changes the

obligations of the assuming party This immediately releases the selling party unless the seller is a party –

After mortgagee has accepted the assumption the only way for the seller to be released from liability is from the 2 ways above

With out the mortgagee agreeing to the assumption, there is not assumption of the lien. The there was be an offer and an acceptance for a valid assumption (K)

o Acceptance can be shown in various ways

Mortgagee expressly agreeing to accept the assumption If not in writing, then a Q of fact raised by:

If the mortgagee files suit against the assumee Giving notice of foreclosure to the assuming grantee Joining assuming party in judicial foreclosure suit Demanding payment from assuming party The assuming party makes a payment to the mortgagee and mortgagee accepts Deal with the assuming party in another way like changing the terms of the

obligation Case: Original mortgagor paid off debt and was looking to collect from subsequent assumes:

o Not able to b/c the mortgagee never accepted, so there was never a valid assuming conveyance &

he was still liableo Plus, there needs to be contractual privity b/w the orginal motgagor and the assumees:

The mortgagee agreeing to the assumption A K b/w the mortgagor and the subsequent assuming parties

Assignment of the lienForm and effect

A Transfer of the note, associated w/ the mortgage, will carry the mortgage; mortgage follows noteo But a transfer of the mortgage does not carry the note; not does not follow mortgage

X owns land w/ mortgage in favor of Y; X transfer mineral rights to Z: X then gives land to Y for debt forgiveness; Since a vendor’s lien follows the indebtedness/mortgage, Y has vendor’s lien

o Three possibilites

Superior title: In the original transfer, if Y specifically received Superior Title in the assignment of

the mortgage, then he would be able to Rescend and cut off the mineral rights given to Z – Y would get the rights

Ordinary Mortgage If Y only has foreclosure rights, he could just foreclose and since Z has inferior

interest compared to Y mortgage interest, Z interest would be cut off and Y would get the mineral rights

Transfer & Cancellation A transfer of the property by the mortgagor to the mortgagee for cancellation of the

indebtedness would not cut of the mineral rights given to Z, b/c you can only give what you have and X for not have the mineral rights

Effect of negotiability of the note on defenses General Rule: The mortgage follows the note.

o If the note is negotiable and the assignee is a bona fide purchaser or creditor, then the mortgage

follows the note. Texas Business & Commerce Code

o §3.104 “Negotiable Instrument”

A note is a promise to pay. The note may be secured or not.

Mortgages are secured by the property. Negotiability as to the note is the right of a holder, taker, or assignee to take that note superior

to any claims against it (like fraud) If there is an assignee, and the note is negotiated, it comes to a “Holder in due course”:

personal property equivalent of a bona fide purchaser. Takes note superior to any claims that might have been made Takes superior to defenses.

If we have a recording problem with a mortgage, it is possible that we can have a BFP (or creditor)

Negotiable Instrument means an unconditional promise or order to pay a fixed amount of money

Formalities under Statute Can be payable to:

Bearer: any one taking the note, or

To the order of: Only specific person Payable on:

Demand, or At a Definite Time

The note may contain (exceptions) a provision which makes the note remain negotiable even as to a mortagage

If it says non-negotiable, then not negotiable. Not negotiable interest between original parties—only negotiable once assigned.

o §3.202 “Holder in Due Course”

Holder of an instrument if the instrument is not forged, altered, or irregular, or incomplete AND

Must Hold the instrument For value In good faith

o Payor, payee, assignee; The Payee can not raise defense to the note not being valid;

Problems arising out of recordation the note itself is transferred by endorsement, unless it is payable to bearer, then it is transferred simply by

handing it over.o To transfer is simply a memo on the back of the note stating that it is transferred from payee1 to

payee2 and endorsed by payee1 Endorsement can be limited in someway

“w/o recourse” to stop the payee1 one from having liability no right to look at the assignor for payment if the payor does not pay.

Mortgage – the security for the noteo If you assign the note, w/o anything else being said, then it carries the mortgage

If you just sign the mortgage then nothing happens b/c can’t have a mortgage w/o note

o The mortgage and the assignment of the mortgage can be recorded under the may statute, and must be

recorded to preclude the possibility of bonified purchasers Case: A assigns B the note and mortgage. B records the note, but not the mortgage. A then give bank a

mortgage on the land.o The issue is whether the bank can be a bone a fide purchasero In TX, if there is a recording problem, you treat the note and the mortgage separately.

Recording of the note is not constructive notice; The bank was not on constructive notice of the transfers so the bank was a BFP

B has right to collect note number A, but the bank has a supeior mortgage on there subsequent deed of trust mortgage

Meaning – you can lose your mortgage to a subsequent claim if you do not record the assignment of the mortgage – just like if you don’t record it in the first place.

§12.001 of property code – if you do not record, even though it is a may instrument you may still lose

In old day, there were no installment notes, but a note was drawn for each installmento A owned land, Bank held notes based on land; notes recorded. Bank assigned notes to C who did not

record. o A sold to D who then went to bank and paid off notes. Bank said ok, but can’t fins checks.o Court held the D as BFP b/c no notice

Possibility that he should have been on iquary notice since bank did not have notes. Correct assignment:

o Delivery of notes with endorsements

Endorse to person specifically, not in blank In blank if only way

Otherwise, the notes on their face belong to someone else and you can’t negotiate them.o Written assignment or transfer of the mortgage that recites the notes and then record written transfer

which is acknowledged If no written transfer, then the mortgage follows the note. If written transfer, and no recordation, then there are three views (see Foster)

Chapter 6 – Enforcement Methods of foreclosing a mortgage (assuming you have note and mortgage) w/o Foreclosure

o Judicial foreclosure (if you don’t have DOT)

File a lawsuit Allege and Prove a debt—money is due and payable now Assert and Prove mortgage Order that includes:

Order of the Court establishing the debt Order of foreclosure Order of Sale

By public official like sheriff, constable, or public authority According to the statute and distribute

Distribute Order of payment

Court costs Debt If there is a residue, then it goes to the mortgagor (unlikely)

o Non-judicial foreclosure

Available only if there is a deed of trust mortgage Mortgagor has given a deed of trust to a trustee for the benefit of mortgagee for foreclosure

Trustee holds naked legal title for foreclosure ONLY Trustee must get instructions by Mortgagee

Trustee is bound by two instruments – must complete procedures as stated in: The mortgage requirements – ie, 2 postings Statute: Property Code §51.002 If there is a conflict between the two:

Direct conflict: Statute Additional Requirements in the Mortgage: Mortgage unless they are in direct

conflict with the Statute 51.002 Requirements: (VERY IMPORTANT)

Must be a public sale Must be by auction Held between 10 am – 4 pm On the first Tuesday of a month Sale at the county courthouse where the land is located; If more than one county,

than either courthouse Commissioner’s Court should designate where at the courthouse the sale will

take place. If no area is designated, notice of sale should designate where it should take place

In San Antonio, the place is designated If in other county, the clerk of the county court should know the designation

Notice of the sale should tell the earliest time when the sale will begin and must give 21 days before the day of sale

Count the last day and not the first. But give a few extra days so that there will be no argument

Notice must be posted on the door of the courthouse where the property is located Notice must be given to the clerk Notice to the holder of the debt – certified mail

Given to each person who is obligated to pay the debt must be notified The time stated in the notice of sale or no later than 3 hours after that time If the property under mortgage is the residence of the debtor, you must give the

debtor 20 days to cure before you bring out notice of sale which requires 21 days until sale. (Homestead provision)

Computation of days set out in the code.Acceleration of Maturity

Makes future payments due now An acceleration clause in the mortgage is require to do this

Types of acceleration:o Automatic – the acceleration of the entire note on the happening of a specific evento Optional Acceleration the mortgagee has the chouice to accelerate or not to if there is a defaulto No acceleration?

The 6 Notices required in a Deed of Trust situation where the acceleration is optional:o 1) Default by mortgagoro 2) Demand by mortgagee to pay past due indebtedness (Residence = 20 day rule must give 20 days

to cure default)o 3) If not paid sufficiently, notice of intent to accelerateo 4) If not paid, notice of acceleration and demand to pay entire indebtednesso 5) If not paid, notice of sale under statute (statutory notice)o 6) Foreclosure sale

By proper waivers in the Deed of Trust, all of the above notices may be waived except for #2 (if a residence) and #5

Contractual waivers are valid and enforceable A waiver of presentment, notice of intent to accelerate, and notice of acceleration is effective if and only if it

is clear and unequivocalo The waiver language must specifically and individually waive each notice of demand and

requirement. You must state each notice that is waivable Case: automatic acceleration starts after 3 notes are in default;

o The statute of limitation is 4 yrs and begins to run at the time the acceleration condition occurs

Only way to stop the clock is to redue the debto Argument, if the mortgagee accepted payment after acceleration, can the mortgagor rely on this

acceptance of payment to estoppe the mortgagee? – doubtfulo You may by your conduct waive the waivers but you can reinstate the waivers by giving notice to

mortgagor. Meaning you can be estopped if you accept late payments, but then can reassert the right w

proper notice. If the statute of limitation runs out, then mortgagee is not able to foreclose

When there is no acceleration clause Mortgagee can only foreclose on past due balance

As each installment goes into default, the statute of limitations begins to run on each To the extent of the past due installments the mortgagee has the right to foreclosure and sell what ever

property is required to cover that debt and the 4yr statute of limition begins to run to be able to foreclose on that debt

Do you sell the entire property?o Is the property devisable?

No, then sell the whole property Yes, then sale a portion of the property which can cover that debt

o What do you do w/ the money you get when you sell the whole property?

Apply the money receive towards expenses Apply the money to the matured debt You apply the money to the unmatured debt Anything left goes to the mortgagor

o What do you do for a divisable parcel and you are guessing at how much is required to cover the

debt? Sell the portion If you get less money then needed, you sell some more property to cover If you get more money then needed

Apply excess to expenses, Pay matured debt Pay to unmatured debt

o If you pay unmatured debt, then you just pay principal, not what the would be interest

If no waiver, You must give separate notices:o if the mortgagee does not give notice of intent to acceleration, notice of acceleration, right to cure, or

the right to payoff after acceleration; then foreclosure sale is invalid. Remedies for wrongful foreclosure

o Set aside foreclosure and reinstate terms

Mortgagee can then attempt to foreclose properly

o Can agree that the foreclosure is valid but to sue for money damages for the injury caused by

wrongful foreclosure Note: Jernigan v. O’Brien: Unless waived, there must be a demand for the cure of the default, opportunity to

cure, after which a notice of acceleration may begin. If you have not accelerated the mortgage, then you may take late payments At time of acceleration, you mortgagor losses the right to cure, the only thing he can do is pay off entire debt Since nothing happens until trustee yells sold, you can pay off all debt until that time

§5.062: “Look-a-like mortgage” VERY IMPORTANT: Long term contracts of sale which are essentially a mortgage. This is a departure by the Legislature from the common law and most of the long term contracts.

Only applies to residences Does not apply to any contract less than 180 days §5.063: Notice in order to reenter the property, you must give the buyer proper notice:

o gives the buyer a right to cure and let him know the normal remedy for default of an installment

contract is rescission and forfeiture. Meaning everything you paid and the land belongs to mortgagee.

o This statute seeks to prevent forfeiture and rescission. It give the buyer a right to cure within 60 days

of the notice.o If you cure by paying delinquency, you carry on by the terms of the contract.o If person has paid more than 40% or the equivalent of 48 monthly payments (Example: Once a year

for 4 years), then there can be no forfeiture or rescission. You must do a trustee’s sale or non-judicial foreclosure.

o Seller will appoint trustee who has all obligations. Seller shall notify purchaser of default and give 60

days notice to cure after you have paid four years. After that, if there is no paying off of indebtedness then you have right to foreclose and sell property under nonjudicial foreclosure proceedings.

The holders of the notes “possible multiple” must all agree to foreclosePower of sale

Deed of Trust gives w/in it a private right of foreclosure The trustee cannot decide to sale, only the mortgagee can tell him to foreclose Only Trustee conducts the actual sale, if not, then the sale if void It is not possible for a person to be a BFP at a foreclosure sale

Case: In the DOT, there is a clause that all recitals in the trustee’s deed (for sale) shall be taken as true So the trustee’s deed that conveyed the property to X and the trustee’s sale

It is not possible for a person to be a BFP who buys at a foreclosure sale, but the person who buys after that could be a BFP

o As long as things look good in the deed and there is not notice

To make things look good in the deed, use a bootstrapping argumento In the DOT the clause said everything in the trustee’s deed will be taken as true.o And then in the deed recited everything which is necessary for a valid deed.o Bootstrapping – you make valid something that would not have been

even though the foreclosure sale was void, the contractual provisions to hold the recitals as true made the deed a semblance of title and the 2nd purchaser a BFP

suit for damages for a wrongful foreclosure, then the property would go back the mortgagor and the terms of the mortgage are reinstated, then the mortgagee would have to foreclose again

Case: Mortgagor paid off mortgage, but trustee accidently foreclosed; buyer gave land back to mortgagor and got all

of the mortgagor’s causes of action Court said no, the one who bids on foreclosed property does so at his own peril

The remedies a mortgagor may have at a wrongful foreclosure sale Set a side sale

o Reinstate the mortgage w/ pervious terms

But, since the note was accelerated, mortgagor must still pay off note Exception, HS – you only have to pay off the past due amount

Affirm sale – amount of the value of the property at foreclosure less the amount owed on the propertyDeficiencies - We hold to deficiencies in this state – a collectable personal judgment

If at the foreclosure sale, if not enough money is received to cover all debts then the Deficiency is the difference in the amount owed and the price received at foreclosure The mortgagee files suit against the mortgagor to get a judgment for the unpaid mortgage and expenses. But now we have statutes, 51.003, there is a right given to the mortgagor in a suit for the deficiency to raise a

defense of valueo Meaning that if the mortgagee does not get a price similar to the value of the land, then the mortgagor

can bring the defense of the fair market value of the day of the foreclosure sell – the value will then substitute for the amount actually received

o Mortgagor will have to prove value; the difference can then be credit to the amount owed – the most

you can do is break even – you cannot get money back.

o Complaining that if the trustee had foreclosed on the property earlier after the default occurred, then

the property would have fetched more $ at sale and the debt would have been paid_o This argument is useless, b/c the mortgagor is the one who decides when to foreclose, and they can do

it when they feel like itother

51.009 – trustee at foreclose give no covenants or warranties of sello if the sale is void, oh well you bought at our own peril – but you will still get your money back

purchaser at foreclosure sale is not a consumer under DTPA statute, cannot sue under DTPA the purchaser at foreclosure gets no more than the mortgagor had, there are no B.F.P. at a foreclosure sale –

Statutory notice of foreclosure issue Mortgage only has to give notice of foreclosure to those who have an obligation or are liable to pay the debt It does not matter whether the mortgagee knows about a transfer or not, they have no duty to notify others

o Transferees of a subject to purchase do not get no notice of foreclosure because they have no

obligation for the debt Inferior interest – do not have to receive notice

6112nd622 – deals will notice requirement – statute says that mortgagee is supposed to give notice to the most recent address listed. Q of fact

Inadequacy of price – Inadequacy of price, even if proven in court, is not grounds to set aside a sale b/c it is not the trustee’s job to

drum up bids. Fraud – b/c there was a relationship b/w the mortgagee and trustee the trustee was a client of the mortgagee Court said does not matter, b/c anyone can be the trustee, including the mortgagee and that the mortgagee can

even bid in the property.Who may be trustee & who may buy property

The mortgagee my buy the property at the sale and it’s OK for the mortgagee’s attorney to be trustee But the buyer cannot be controlled by the trustee;

o Major shareholder, director,

The mortgagee may be the trustee and may buy in at foreclosure.o However, the trustee was not the mortgagee and the trustee and the purchaser were in a relationship

of confidence which is not allowed in perfectly valid sale.

If there had been a contractual provision allowing the property to be sold to trustee or fiduciary of trustee, then it would have been valid.

What is a sale goes wrong The mortgagor has a right to make current the mortgage, possible means all debt owed if accelerated, any

time before the sale. If the land is accidently sold, the buyer is never considered a BFP. Sale would be void, Mortgagor gets land back and there is not foreclosure. So purchaser can either sue to get money back, or to be subrogated to the mortgagee

o The purchaser at foreclosure is now a judicial transferee of the note in mortgage – the purchaser is

now the mortgagee by subrogation If too much was paid for the land, then the mortgagor get the rest No BFP ever possible after a liz pendence has been filed; even w/ bootstrapping

Payment at sale Buyers must arrive w/ cash unless otherwise stipulated in the DOT Trustee must wait for buyer to get cash; for as long as it does not jeopardize the sale. – minority Majority – the trustee does not have to wait to money

Probate Administration Problem In the administration of a decedent’s estate, there are two categories

o Dependent

Court appointed Administrator Completely under court control

o Independent

Executor or Court appointed Independent administrator Court appointed administrator must be agreed upon by all interested parties

Independent of the court A mortgage on a decedent’s property existing at death (Mortgagor dies)

o If the payments are not in default and the devisees keep up the payments, then there is no problem.

o If there is a default, the court must make a determination regarding the mortgage.

Rules:o Odinary (dependent) administration

If the sale is had BEFORE the administrator is appointed, the sale is voidable at the request of the administrator.

If the administrator is not appointed or if one is appointed and he does not object to the sale, then sell is valid

If the sale is DURING the dependent adminstiration, then the sale is VOID, no power to sale If the sale is AFTER four years from the death of the mortgagor IF no administration was

ever open is VALID. Effective when sale was made, not fter 4 yrs

o Independent Administrator

Gen rule : sale by deed of trust trustee during the administration during an independent executor’s administration is valid: - our case, but other don’t agree

But in 1995 – the legislation change the probate code and says: There can be no foreclosure of a mortgagor mortgage during the independent administration

w/o the leave of the probate court Seems to say, for a trustee to foreclose on a defaulted deed of trust mortgage, the trustee must

get the leave of the court But Gary v … 967sw2nd836 – In concluding, it depends on the judicial district that you are following. The appellate courts

do not agreeo A deed of trust sale is VALID if no administration is ever open.o A deed of trust is VOID if during the pendency of the administration.o A deed of trust is VOIDABLE if administration is made after the sale.

Receivership a receiver - court appointed officer of the court to take control of designated property during a court case for

maintance of the property the S.C. said when property is in the custody of the court and cannot be dealt w/ privately (receivership)

o even though a liz pendene was never filed, and the purchasers were w/o notice, the property still

cannot be dealt w/Damages for wrongful foreclosure

The criteria to determine to figure damages:

The difference of the FMV of the property on the day of foreclosure and the amount owed on the note If the value of the property on the day of foreclosure, exceeds the amount still due on the note, and the sale

is wrongful then the mortgagor has a right to sue for the excess.51.004: Judicial Foreclosure

The only difference between 51.003 (Deed of trust foreclosure) is the statute of limitations on the deficiencies is 90 days rather than 2 years.

51.005: Guarantor who has paid of the mortgage may have a subrogation suit against the mortgagor to get the money paid back.Deed from Mortgagor to Mortgagee

A deed of a mortgagor to a mortgagee for the forgiveness of the debt, a deed in liue of foreclosure, - what is the effect on inferior interest?

o This is not a foreclosure and not a deed instead of foreclosure, and it cannot have the effects of

foreclosure I don’t think there is such a thing – deed in lieu of foreclosing

This is nothing more than another link, or muniment, in the chain of title, grantee gets no more than the grantor has and grantee got the and, minus the inferior interest (mineral interest)

BUT if this had been a vendor’s lien, and the mortgagee, bank or seller, holding the right of rescission or foreclosure,

If the mortgagee, or assignee, take a deed in forgiveness of indebtedness, it does wipe out inferior interest. In Texas, the recording of an instrument is prima fecia evidence of delivery, but it is rebuttableWrap around: - Why there are “due on sales clauses

Wrapped motgage requires:o an existing mortgageo a transfer of the land by the mortgagor in which the prior debt/note is added in as part of the apparent

purchase price and exhibited in the 2nd mortgage/note you need 2 mortgages and the 2nd mortgage needs to contain the mortgage amount of the 1st

so – 1st mortgage – outstanding balance 100K @ 6% outstanding; then mortgagor transfers property for 100K + note, the 2nd mortgage is for 200K @ 20%

the Transfer must be SUBJECT TO – o so the mortgagee of the 2nd mortgage receives payments for the 200K @20% and then pays the 1st

mortgagee his payments of 100k @ 6% - Since the mortgagee cannot take money that is not yet due, if there is a wrap around mortgage and one of the

mortgagees forecloses, his balance is paid off and the excesses is given to the mortgagorVendor’s Superior Title & Lien

If a sale is made and the vendor’s lien is expressly reserved and the vendee does not make any payments nor take possession, the vendor can then resale w/o any notice of any type to the prior vendee

In a writ of attachment, you have no property interest in the property attachedIn a writ of sequestration, you have a property interest in the property attached, most likely a mortgage interest

You still must file liz penden for both For both of these you must post bond, basically stating that you will win, if you don’t, you pay for the seizure

A receivership, a person will take actual possession of the property – this is more costly Do this is you think the property will be wrecked

The exception to the general rule of bona fide purchaser: You cannot transfer to a bona fide purchaser and then have them assign it back to you if you were the cause

of the problemWhether the Statute of Limitations bar the action?

Depends on the nature of transaction If deed from substitute trustee was voidable, then there is a 4 year statute of limitation to set aside the deed. If the deed from the substitute trustee is void, then the only statute that runs is the adverse possession statute:

10 year statute.When can the court deny resicion –

If everything is proper, then never if everything is proper w the vendor’s lien Resicion is purely equtable and rarely – something Resision wipes out the vendee, everything permenate on that land now belongs to the vendor

o Since the resision is equtable remedy, if the vendee builds a mansion and he misses a $6 payment,

chances are resission will not be allowed even though the vendor has that right – b/c it is not equitable Time does not bar rescission Rescission follows the property, so if the vendee dies, can still rescind

Whether the tender is sufficient (attorney offered to pay what the plaintiff would accept)? An amount that must be tendered is the obligation of the lender to calculate. A legal tender would require that the money be placed with the court. However, if equitable cause of action

like rescission and you have not been advised about the right to tender, an offer to pay what the proper amount is considered equitable tender.

Whether you must make a demand of the payor of the note before you rescind?

o Ordinarily, you must.o Exception:

If the buyer makes no payments or take possession, then the vendor may rescind by acting like nothing happened.

If the buyer has acted, then there must be a demand and then a notice of rescission.Limitations

§16.035: Texas Civil Practice and Remedies Code (Statutory Requirements)o A person must suit for the recovery of real property under foreclosure or real property lien not later

than 4 years after the day the cause of action accrues SOL is an affirmative defense and MUST be raised against the pleading (Can’t give a general

pleading without specifically asserting SOL)o 4 year statute also applies to the debt as well as the mortgage.o The SOL will not be suspended or cease to run once it has started to run EXCEPT when:o There may be a possibility of the statute never starting to run:

Mental incompetence Infirmity

o After 4 years, the affirmative defense will cause the cause of action to become void.o In a series of notes and obligation or a note payable in installments, the 4 year SOL doesn’t begin to

run until the maturity date of the last note. Ex: In a 40 year note and no payment was made, the SOL will not begin to run until the

maturity of the last note. An action accrues when the first opportunity or first right to collect the indebtedness. On a single note, the day of the note matures is the date of accrual and the date that the SOL

begins to run. If on a single note, there is no date of payment, the right accrues INSTANTLY. (a

demand note has an instant accrual date)o Today, you have no right to rescind under superior title after 4 years after the indebtedness accrues.

Rescission is NOT a remedy after 4 years. All types of foreclosures also have a 4 year SOL. §16/036: Extension of Real Property Lien

o Parties which are primarily liable may suspend the running of the 4 year SOL (Meaning interrupt)

period from real property liens through a written extension agreement by: The limitations is suspended and the lien remains in effect after the extended maturity date if

Signed and acknowledged

Filed for recorded in the county clerk’s office In theory, you can keep the statute going as long as the parties will agreed. The maturity date stated in the original instrument or in the date or in the date recorded, it is

conclusive evidence of the maturity date. §16.037: Effect of Extension of Lien Debt on Third Part

o Extension agreement is void to a BFP without actual notice of the agreement and before it is

recorded. §16.062: Effect of Death (Most it can be is 1 year)

o The death of a person against whom or in whose favor will be suspended for 12 months after their

death o If an executor or administrator of decedent’s estate qualifies before the expiration of 12 months, the

SOL will begin to run. o Suspension but doesn’t require the SOL to start over.

§16.065: Acknowledgment of Claimo Deals with a reinstatement of an indebtedness if barred by the SOL.o The payee may be required to do so because of other circumstances.

Ex: May reinstate a debt if payee is in a financial squeeze and the payor is willing to lend more money.

o To reinstate an indebtedness:

Signed by payor In writing Statement or acknowledgement of a claim of indebtedness Promise to pay Record to keep from 3rd party from relying on the SOL

o Case: statute of limitation barred the debt, but debtor wrote a letter talking about the debt:

This was sufficient to acknowledge the debt A promise to pay was implied in the letter since he did not specifically state he was not going

to payIs title marketable after 4 yrs

The law states that there is a conclusive presumption that the debt is paid if it is past due more than 4 years. Therefore, the attorney wrote an opinion saying the deed was good.

o Court of Appeals held that the Statute makes the deed a marketable title.o A marketable title is not one that is free from ALL reasonable defects but a title that a reasonable

person who take from a seller. Whether or not the statute makes the title marketable

o In every K for a sale of land, there is an implied covenant of marketability of the lando Yes, total reliance maybe had on the record, the statute makeso Record shows maturity date and 4yrs after maturity date the title is marketable unless there is a

recorded acknowledgement or an extension. You would file either the letter making the acknowledgment or an affidavit stating the

mortgagor acknowledged A mortgagee in possession precludes the statute of limitations from running to bar the debt

o In TX, a mortgagee is rightfully in possession of the mortgaged premises with one of the three

situations. With permission of the mortgagor Peaceable and Good Faith Possession under a failed foreclosure Peaceable possession by the mortgagee

“Right to extend a barred or a statute running note” If it is not yet barred, an agreement between a party not yet barred and the mortgagee is good to make it start

over. If the statute is already barred, the indebtedness may be reinstated by an acknowledgement of the

indebtedness and an agreement to pay. Whether the maker of the note can renew and extend note when it has been barred if the land has been

transferred? The transferee took the land from the mortgagor subject to the mortgage which means that the original

mortgagor is still liable. Whether the party which was originally liable can renew and extend after the notes are barred? No. The mortgagor can no longer renew and extend the notes if barred by the statute of limitations.

Between a mortgagor and mortgagee, anything at any time goes. The mortgagor and the mortgagee may extend before or after the notes are barred. : All possibilities before and after

Between a mortgagor to transferee and mortgagee: the one who is primarily liable and the mortgagee can renew and extend IF THE NOTE IS NOT BARRED

o If the transfer is subject to then the mortgagor is primarily liable and may extend before limitations

but not aftero If the transfer is by assumption then the transferee is primarily liable, then the mortgagor has no right

to extend because not primarily liable. If transferee extends, then mortgagor will be released.

If mortgagor and mortgagee to second mortgageeo Any renewal or extension between Mortgagor and Mortgagee before or after they are barred is good

as between a 2nd Mortgagee Being a 2nd Mortgagee is not an enviable positions

“2 Transferees assumes the indebtedness” The second transferee who assumed the debt is liable and the first transferee becomes a surety and DOES

NOT release the first transferee. The 2nd transferee renewed and extended the debt but he defaulted. Whether the renewal is effective by the transferee?

o Yes, because the second transferee renewed and accepted and was primarily liable.

Case: Was the agreement a renewal & extension or a new deal If it is a new deal, new note loan and mortgage (used to pay off old mortgage) then everyone with liability of

the old mortgage will be released Put language into the renewal and extension that the old debt is being incorperated and Subrogation is not considered a renewal/extension

Marshalling Common Law Doctrine in regards to foreclosure possibilities when a mortgage covers land of more than one

land owner. Example:

o Mortgagee, X, gives mortgage on land to mortgagor, D, for 1 piece of land as security for the lien in

1989. In 1990, Mor, D, conveyed West ¼ land to A subject to In 1995, D conveys to B another ¼ subject to In 2000, D conveys to C another ¼ subject to D holds the final ¼ Eastern portion of the land. In 2001, D has not paid mortgage to X and there is a foreclosure. The first rule of the law of marshalling is a relegation of the method of sale in foreclosure.

Land of D is foreclosed upon first.

Land of C is second, B is third, and A is final. The second rule of marshalling is release of higher parties: If Mee releases C with

knowledge, then Mee also releases A and B. Marshalling only applies to subject to mortgages Rule 1: Inverse Order: Where land subject to a lien is divided into parcels, the parcels are chargeable to pay

the debt in inverse order of alienation.o Property remaining in the mortgagor is foreclosed upon first.o Then you continue in inverse order of foreclosure.

Rule 2: Release of higher parties: If the lien holder, Mee, with knowledge of the facts releases from the lien a tract made primarily chargeable under rule one, those liable after it are held to be released so far as to prevent injury to them.

o “Knowledge”: Mee knows that there are higher interests

We do not marshal with you own property – meaning you cannot marshal b/w two different interest in you property

Marshalling can be done at the same sell, just in the order designated The Court held that if you take subject to but also have a contractual agreement, you may have waived their

right to marshalling and be subject to foreclosure.Redemption After the Foreclosure Sale

Redemption has nothing to do with DOT, or non-judicial foreclosure It is the right of the mortgagor to buy back the property by paying off what ever is owed on it after foreclosure

o if it is judicial foreclosure, any interest of that property which is of record or actually known, is to be

made a party then in order to defeat the right of redemption Must have a title interest to have redemption right; Not Mortgage or lien interest

o Mortgage and lien holders are not title holder, so no right of redemption, but they can be made a party

to the lawsuito But - reduce the lien holding right to a title interest by foreclosing and sale under your right.

There is no right of redemption in deed of trust foreclosure, in the mortgagor or inferior interest, unless given by a statute

Case: - A lien and has no right to redeem until he forecloses and forced sale under a writ of attachment Case:

o The mortgagee must check constructive and actual notice to make other parties part of the judicial

proceedingso Constructive notice – must check land records to make sure no one claims an interest inferior to you

as show on the record at the day of judgment/ day of trial To make sure no one has filed an inferior right or burden against that property

o Actual notice – if you know or should know that there is interest outstanding, then you must make

them a party Slay case:

o Does the mortgagor have a right of redemption after a deed of trust foreclosure sale to an inferior

interest – land is sold in a 2nd mortgage or similar.o Once any mortgagee forecloses and the property is sold, all rights of the mortgagor are extinguisho This is true about the sale of the property under any DOT foreclosure

Redemption statuteo One possible right – home owners associationo §209.001

in a homeowners association – 180 days right of redemption after the foreclosure sale, there is a 180 day right of redemption for the property in

the home owners association – as long as there are dues owned? So buyer take property subject to the home association not redeeming

Logan case – last case Deed of trust foreclosure sale

o The 2nd lien holder got no notice of the sale- who was not entitled to the noticeo If the trustee’s sale is proper, then all inferior interest are wiped out

in a dot foreclosure, you have no duty to do anything with inferior interest holders

Redemption has NOTHING to do with deed of trust or non judicial foreclosure. Unless Legislature makes a specific determination

o ONLY applies to judicial foreclosure

Requires Mee to file a lawsuit against a Mor or Tranferee by assumption and get a judgment for money,. Requires that there be a pleading of a lien or mortgage and Mee must prove the right to Must ask the Court for a foreclosure and property sold for collection to pay indebtedness. The Sheriff will sell to the highest bidder at the courthouse door. Redemption is a right had by any inferior interest of the mortgage foreclosed in a judicial proceeding which

requires that the inferior party be made parties to the lawsuit in order.

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