Real Property Law in Emerging Markets

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Real Property Law in Emerging Markets

• Harland L. Miller, III
• Visiting Fulbright Scholar
• Pravna Fakultete
• Univerze v Mariboru
• Lecture 5 19.3.2008

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• MORTGAGES

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Glossary Terms

• Discharge
• Equity
• Foreclosure
• Mortgage
• Obligation
• Promissory Note
• Redemption

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Mortgage

• A mortgage is an interest in real estate
  providing security for a debt or other
  obligation. In most cases, a mortgage is granted
  to secure the repayment of a loan.

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Obligation

• Obligation A legal or moral duty which renders
  a person liable for neglecting the duty.

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Promissory Note

• A written promise to pay a specified sum at an
  agreed upon time to the person or legal entity
  stated therein.

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Mortgage Deed

• A conditional deed that conveys the real property
  to the lender as security for the repayment of
  the mortgage debt (the promissory note). When the
  conditions are met, the lender will issue a
  Discharge.

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Discharge

• A formal document which recites that a mortgage
  debt has been satisfied and which is generally
  recorded in the land records (or registration
  office).

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Foreclosure

• The legal process by which the conditions of a
  mortgage are enforced and the property rights of
  the owner are terminated.

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The Mortgage Transaction

• Application process
• Documentation
• Performance of loan terms
• Discharge or foreclosure

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Application and approval

• Borrower must be able to establish
• that they will own real property
• the property will be unencumbered
• the value of the property exceeds the amount of
  the loan
• the Borrower will be able to repay.

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Loan Documentation

• Promissory Note
• Mortgage Deed
• Disclosure Forms
• Settlement Statement

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Promissory note

• Amount Borrowed
• Interest Rate
• Pay-back period
• Payment amount
• Balance due at end of the term

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Promissory note (cont.)

• Where payments are to be made
• Due date
• Late charges and penalties
• Security for the loan (mortgage)
• Pre-payment fees/penalties
• Assumable (?)

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Mortgage deed

• Conveyance language
• Property description
• Promissory note
• Conditions
• Enforcement options

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Mortgage conditions

• Pay all real property taxes
• Keep property adequately insured
• Do not commit waste
• Do not sell the property
• Do not create environmental waste

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Mortgage conditions (cont.)

• Lenders right to cure or fix
• Lenders right to take possession if property is
  abandoned
• Lenders right to foreclose

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Performance

• Most mortgages are fully performed (repayment by
  the borrower) and the mortgage deed is discharged
  when repayment is complete or the property sold
  and the mortgage is paid off from the sale
  proceeds.

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Foreclosure

• In the event the borrower cannot or will not make
  the payments as provided under the note or
  violates other conditions of the mortgage, the
  lender has several different enforcement
  remedies.

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Cure or fix

• Lender can pay delinquent taxes or insurance
  premiums and add this to the amount the borrower
  owes the lender.

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Foreclosure

• Lender can start a foreclosure.
• Two types of foreclosures
• Sale
• Strict Foreclosure

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Judicial foreclosure

• The lender must go to court and the court will
  oversee the foreclosure process. It will
  determine the amount due, a redemption period for
  the borrower, and whether a sale will be held.

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Redemption period

• A final right of a borrower or debtor to pay-off
  a loan and restore ownership of the real property
  free and clear of the mortgage. In a judicial
  foreclosure this right of redemption is
  established by the court.

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Foreclosure sale

• The sale of real property pursuant to a mortgage
  deed whereby the sale proceeds will be used to
  satisfy the amount owed the lender.
• Any excess proceeds will be paid to junior
  creditors, if any, and then to the owner of the
  real proeprty.

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Deficiency

• If the foreclosure sale does not realize enough
  funds to satisfy the mortgage debt, the borrower
  may still be held liable for the remaining
  amounts due the deficiency amount.

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Strict Foreclosure

• A court decree in a foreclosure action that will
  vest title in the foreclosing lender on default
  of payment by the borrower and the expiration of
  any redemption period established by the court
  without any sale of the property.