*All parties to a mortgage can transfer their interests*
- The mortgage automatically follows a properly transferred note.
- The creditor-mortgagee can transfer his interest by:
- Endorsing the note and delivering it to transferee; or
- By executing a separate document of assignment.
“Personal defenses” = Lack of consideration; fraud in the inducement; unconscionability; waiver; estoppel
Thus, the holder in due course may foreclose the mortgage despite the presence of a personal defense.
By contrast, the holder in due course is still subject to “real” defenses that make that the maker might raise:
MAD FIFI4, the Real Defenses:
- Material Alteration
- Fraud In the Factum (a lie, a misrepresentation in the interest)
- The note must be negotiable, made payable to the named mortgagee;
- The original note must be indorsed, signed by the named mortgagee;
- The original note must be delivered to the transferee. A photocopy is unacceptable;
- The transferee must take the note in good faith without notice of any illegality; and
- The transferee must pay value for the note, meaning some about that is more than nominal.
- If O, the debtor-mortgagor, sells Blackacre, which is now mortgaged, the lien remains on the land so long as the mortgage instrument has been properly recorded.
EX: On January 10, Madge took out a $50,000 mortgage on Blackacre with First Bank. First Bank promptly and properly recorded its interest on January 10. Thereafter on January 15, Madge sold Blackacre to Buyer. Buyer had no actual knowledge of the lien. Buyer promptly and properly recorded its deed.
Buyer holds subject to First Bank’s mortgage. All recording statutes apply to mortgages as well as deeds. Thus, a later buyer takes subject to a properly recorded lien.
It does not matter which recording statute the jurisdiction has enacted.
--In a notice state, Buyer takes subject to the lien because the buyer is on record notice of it when the buyer takes.
--In a race-notice state, Buyer takes subject to the lien because the buyer is on record notice and First Bank won the race to record.
EX: Assume now that on January 10, Madge took out a $50,000 mortgage on Blackacre with First Bank. On January 15, Madge sold Blackacre to Buyer. Buyer had no knowledge of the lien. On January 20, First Bank recorded its mortgage in Blackacre. On January 30, Buyer recorded his deed to Blackacre. Does Buyer hold subject to First Bank’s mortgage? This time it depends on which recording statute has been enacted.
--Race-notice jurisdiction: The buyer loses because he lost the race to record.
--Notice jurisdiction: Buyer wins so long as he was a BFP when he took. It does not matter that buyer loses the race to record.
In a notice state, a subsequent BFP prevails over a prior grantee or mortgagee who has not yet recorded properly at the time the BFP takes.
- Who is personally liable on the debt if O, our debtor-mortgagor, sells Blackacre to B?
- If B has “assumed the mortgage”:
- Both O and B are personally liable. B is primarily liable; O remains secondarily liable.
- If B takes “subject to the mortgage”:
- B assumes NO personal liability. Only O is personally liable. But if recorded, the mortgage remains on the land. Thus, if O can’t pay, the mortgaged may be foreclosed