Jon Bruce - Real Estate Finance in a Nutshell

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JESSE H. CHOPER

Professor of Law,
University of California, Berkeley

JOSHUA DRESSLER

Professor of Law, Michael E. Moritz College of Law,
The Ohio State University

YALE KAMISAR

Professor of Law, University of San Diego
Professor of Law, University of Michigan

MARY KAY KANE

Professor of Law, Chancellor and Dean Emeritus,
University of California,
Hastings College of the Law

LARRY D. KRAMER

Dean and Professor of Law, Stanford Law School

JONATHAN R. MACEY

Professor of Law, Yale Law School

ARTHUR R. MILLER

University Professor, New York University
Professor of Law Emeritus, Harvard University

GRANT S. NELSON

Professor of Law, Pepperdine University
Professor of Law Emeritus, University of California, Los Angeles

A. BENJAMIN SPENCER

Associate Professor of Law,
Washington & Lee University School of Law

JAMES J. WHITE

Professor of Law, University of Michigan

SIXTH EDITION

By

JON W. BRUCE

Professor of Law
Vanderbilt University

Mat #40617120

Thomson/Reuters have created this publication to provide you with accurate and authoritative information concerning the subject matter covered. However, this publication was not necessarily prepared by persons licensed to practice law in a particular jurisdiction. Thomson/Reuters are not engaged in rendering legal or other professional advice, and this publication is not a substitute for the advice of an attorney. If you require legal or other expert advice, you should seek the services of a competent attorney or other professional.

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ISBN: 9780314183545

To my wife
Barbara Edmonson Bruce

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This book is a concise textual treatment of the law of real estate finance. It is designed primarily to help law students negotiate a law school course on the subject. Other members of the legal community may use this work as a general reference and starting point for research. A table of secondary authorities is included to acknowledge sources and assist readers who desire more information about a topic introduced in this volume.

The material in this book is organized into detailed outline form for two reasons. First, the format is utilized to give students a thorough overview of the subject and a set of pegs upon which to hang information gleaned from classroom discussion. Second, the relative rigidity of this style helped me resist the urge to write a treatise-like work complete with mountains of footnotes. Such a volume, of course, is inconsistent with the purpose of the Nutshell Series. Exhaustive discussion, therefore, has been sacrificed in favor of summarization and clarity. Readers are requested to keep this in mind while proceeding through these materials.

One final word about the book. Real estate finance is like most property law, overgrown with rules. The principles, of course, are stated here, but so are the underlying theories. This approach is intended to afford VI readers a better understanding of doctrine as well as an opportunity to begin critically examining it.

I wish to say thanks to the following peoplemy wife Barb for her patience and understanding during the preparation of all six editions of this book; John Stark and Dan Sterner of the Indianapolis bar for giving me an excellent introduction to the practice of real estate finance law; Doug Mulligan, my research assistant on the first edition, for his tireless efforts; Jim Gillespie for his encouragement and helpful comments on the first edition; Scott Sartin, my research assistant on the fourth edition, for his conscientious assistance; Jim Ely, a Vanderbilt colleague, for his valuable suggestions about the third through sixth editions; law librarians, editors, faculty-support staff, and others for their help with this and prior editions.

JON W. BRUCE

Vanderbilt Law School
November 2008

OUTLINE

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C. Mutual Savings Banks

Chapter 3. Real Estate Financing Devices

B. Mortgaging Separate Interests in Same Land

C. Federal Home Loan Bank Board Regulations

1. Nonnegotiable Obligation

III. Right to Possession and Rents

III. Selected Issues

A. Parties Defendant

I. Background

SIXTH EDITION

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This introductory chapter presents an overview of the law of real estate finance. Because the mortgage is the cornerstone of real estate finance, it is the focal point of this chapter and for that matter the entire book.

A mortgage is the transfer of an interest in land as security, usually for the repayment of a loan, but occasionally for the performance of another obligation. The typical mortgage transaction is relatively uncomplicated. A landowner borrows money from an institutional lender and enters a written agreement with the lender that the landowners real estate is collateral for the loan. In legal terminology the landowner-borrower is a mortgagor, the lender is a mortgagee, and the agreement is a mortgage. If the mortgagor fails to pay the mortgage loan, the mortgagee may enforce its security interest by using appropriate foreclosure procedures to have the mortgaged land sold to satisfy the debt. (In all of the illustrations in this book MR refers to the mortgagor and ME refers to the mortgagee).

A mortgage exists solely as security for an underlying obligation, ordinarily a promissory note. See Ch. 4, pp. (considering necessity for underlying obligation and form of obligation). Consequently, every mortgage lives, travels, and dies with the obligation it secures.

Illustration : MR executes a promissory note and a mortgage to ME. ME assigns the note to A, but through inadvertence fails to assign the mortgage to A. Nonetheless, the mortgage follows the note into As hands by operation of law. See Ch. 7, pp. (discussing assignment of mortgage loan).

Illustration : MR executes a promissory note and a mortgage to ME. MR pays ME in full. ME returns the note to MR, but ME does not release the mortgage. ME has no further rights under the mortgage. The security interest created by the mortgage lapses when the underlying debt is satisfied. See Ch. 4, pp. (analyzing discharge of obligation and mortgage).

A mortgage, as the transfer of an interest in land, falls squarely within the scope of the Statute of Frauds. Thus, mortgages, as well as agreements to execute mortgages, must be in writing to comply with the Statute. Equitable principles, however, may dictate that a mortgage arises by operation of law or is enforceable even though it is unwritten.