Mortgages & Foreclosures

Securing your interests when lending money for a Maine land transaction is crucial to your ability to collect on the debt in the future should the need arise. Don’t find out that you did the mortgage incorrectly when it comes time to foreclose. We are ready to help you protect your investment or foreclose to try to recoup a debt owed to you.

Mortgage law and the Law of Foreclosures go hand in hand. We are experts in drafting mortgage instruments to protect our clients. We are also experienced foreclosure attorneys. If you need help securing your property interest or foreclosing a property, call us today to discuss your case.

Mortgages

Traditionally, a mortgage is a conveyance of real estate to another as security for the payment of a debt. If the debt is paid, the mortgage deed is discharged. Typically, a mortgage transaction involves two documents: (1) the mortgage deed whereby the borrower conveys an interest in the property to the mortgage holder (the borrower retains the right to possession so long as the mortgage remains paid); and (2) the promissory note that creates the legal obligation to pay the money. Thus, the mortgage deed simply serves as a backup to the promissory note to ensure that if the promissory note is not paid, the mortgage holder could then foreclose the mortgage to take possession of the property and sell it to recover its money.

mortgage

A mortgage deed is similar to a warranty deed but it contains a “defeasance clause” which states that if the debt is paid, the conveyance is void and of no effect. Maine is a Title Theory State which means that legal title is conveyed along with the mortgage subject only to the defeasance clause. In addition to the covenants traditionally contained in a warranty deed, mortgages also typically contain a covenant by the borrower to pay the note, pay the real estate taxes, insure the property, and maintain the property in good condition. Mortgages also often contain an “acceleration clause” which permits the mortgage holder to demand the entire amount owed under the note immediately in the event of a breach by the borrower. Mortgages might also include prepayment clauses that permit or disallow the early payment of the mortgage by the borrower.

Term mortgages call for payment over time with interest being paid up front, and a lump sum payment of the principal at the end of the term. Amortized mortgages require payment of both principal and interest together over an established time period, usually in monthly payments.

Knowing just what type of priority your mortgage has is important. Some mortgages have priority over other mortgages that might be held by another party. The priority of each mortgage is typically established based on the date the mortgage was recorded. Thus, the first mortgage that is given on a property is typically the first to be paid in the event of a foreclosure.

There are many products offered by banks today that are variations of traditional mortgages, and for all intents and purposes, they have the same legal effect as the traditional mortgage. Home equity lines are nothing more than open mortgages through which a person can borrow against the equity in their home for a set period of time and up to a set amount, after which the borrowing period closes and a traditional mortgage remains. Some banks will permit a borrower to pay only interest during the borrowing period on a home equity line, while others will require payment on principal and interest throughout the borrowing period.

One alternative that is sometimes used by individuals selling land is called an Installment Land Contract. Under this method, a promissory note is given and payments are made to the seller over a period of time, but the deed is held back by the seller and only signed over to the buyer after the full contract has been paid.

Foreclosures

The law of foreclosure refers to the process by which a mortgage holder can claim the property to recoup the money owed to them after a homeowner defaults on the mortgage. It is a complex process and by far the most active area of real estate law in Maine’s Courts today. The term “foreclosure” can be understood through the multi-step process used in Maine to take a property through a mortgage deed. The underlying goal of our law is to provide every opportunity for the homeowner to redeem their interest in the property while providing the mortgage holder with a reasonable ability to protect their interest.

Most private foreclosures are begun by sending a Notice to Cure to the delinquent borrower demanding payment within a set timeframe and notifying the borrower of their rights and the fact that a Court action will be brought if payment is not received. The Notice to Cure must contain very specific language or the entire foreclosure process will be undone. Thus, it is crucial that you seek an experienced attorney to help you with this process. If the default is not cured by the time stated in the Notice to Cure, the mortgage holder will typically file a civil action to foreclose the property in the Maine Court. The foreclosure process in Maine is governed by statute and includes many specific deadlines. Once an action is filed, the borrower’s right of redemption begins to run. This is a period of time during which the borrower will be permitted to stop the foreclosure by correcting the default. Once the period of redemption has expired, the borrower’s interest in the property is said to be foreclosed (barred) forever.

Although Court action is often necessary, there are other methods of foreclosing a property that are simpler and less costly to the parties. For instance, a party may simply give a Deed in Lieu of Foreclosure, whereby the borrower conveys the property to the mortgage holder to prevent the process of having to go through foreclosure, and to ensure that the borrower will not have to pay any deficiency between the value of the property and the amount owed.

Once a property is foreclosed, the mortgage holder holds both legal and equitable title to the property. The property is then sold at a public auction after being published in a paper of common circulation in the county in which the property is located. If the property sells for more than is owed, any excess money must be paid according to the priority set by the Court in its foreclosure judgment. If, after all of the mortgage interests are paid, money is left over, the money is paid to the borrower. If there is insufficient money from the sale to pay the whole debt, however, the borrower might be faced with a “deficiency judgment” whereby they are still obligated to pay the remaining amount owed after the house sale.