Jun 26, 2021
THE NEW REALITY: PRIVATE MORTGAGE DEFAULTS - POWER OF SALE & FORECLOSURE - Part L of a Series – Personal Guarantees part 1
Post XLI started an in depth look at power of sale litigation. In the previous Post XLIX I mentioned the fact that obtaining a judgment in the courts does not operate as a merger of the mortgage debt. Meaning that the mortgagor continues to owe the mortgage debt to the mortgagee including all out of pocket costs and expenses incurred by the mortgagee, even after the mortgagee sues the mortgagor and obtains judgment from the courts against the mortgagor. This blog leaves the issue of costs behind takes a look at the promise to pay in the mortgage.
A mortgage is actually a unique legal instrument, because it contains both a promise to pay (not unlike a promissory note) and a mortgage also contains a charge of land. These 2 factors work well together. The mortgagor promises to pay the mortgage debt to the mortgagee/lender and the mortgagor also charges or encumbers the real property in question as security for the loan. If the mortgage debt is not repaid, then the mortgage security becomes enforceable and the mortgagee/lender has a choice; either to sue on the promise to pay (called suing on the covenant) or to enforce the mortgage or both. Enforcing the mortgage can include collecting rents (called attorning rents), taking possession or suing for possession of the mortgaged property, foreclosing on the mortgaged property and lastly, selling the mortgaged property (see post IX for a discussion on foreclosure Vs power of sale remedies).
When the mortgage lender agrees to make the mortgage loan, it often is satisfied with the owner’s promise to pay the mortgage debt and with the value of the mortgaged security. However, sometimes the mortgagee asks for a third party (often the mortgagor's spouse - or some other third party who is not an owner of the mortgaged property) to also promise to pay the mortgage debt. The easiest way to do that is for the third party to guarantee the mortgage. More on personal guarantees of mortgages in the next post.
As always, this blog is intended for information purposes only. It is not legal advice and cannot be relied on as such. Nor is it a substitute for hiring your own legal counsel, who will be an essential member of your mortgage default and power of sale team. And lastly, this blog is just my opinion. I reserve the right to change my mind. And I reserve the right to be wrong.
Be well and stay healthy.