1. Chapter 11
Mortgage Forms and Provisions

2. Objectives
• After reading this chapter, you should be able
to
– Understand the provisions contained in residential
and commercial mortgages.
– Understand the provisions contained in a
construction loan agreement.
– Understand the provisions contained in an
assignment of leases and rents.

3. Residential Mortgage Provisions
• Fannie Mae/Freddie Mac uniform mortgage
instrument
– Used to secure most residential loans nationwide
– Provisions:
• Part A: Date of mortgage
• Part B: Name of borrower
• Part C: Name of lender
• Part D: “Note” describes debt
• Parts E thru P: Terms and their definitions

4. Transfer of Rights in the Property
• Conveyance or transfer of the real property in
the mortgage to secure the repayment of the
note
– Contains complete street address and legal
description of the real property
• Should match survey description for real property as
well as description contained in borrower's deed

5. Transfer of Rights in the Property
• Conveyance also provides for all easements,
rights, appurtenances, rents, royalties, and
mineral and gas rights of the borrower
• Also contains a warranty paragraph wherein
the borrower sets out same warranties usually
found in a general warranty deed

6. Uniform Covenants
• Payment of principal, interest, escrow items,
prepayment charges, and late charges
• Application of payments or proceeds
• Funds for escrow items
• Charges
– Liens
• Property insurance

7. Uniform Covenants
• Occupancy
• Preservation, maintenance, and protection of
property
– Inspections
• Borrower's loan application
• Protection of lender's interest in property and
rights under this security instrument

8. Uniform Covenants
• Mortgage insurance
• Assignment of miscellaneous proceeds
– Forfeiture
• Borrower not released
– Forbearance by lender not a waiver

9. Uniform Covenants
• Joint and several liability
– Cosigners
– Successors and assigns
– Borrower
• Loan charges
• Notices

10. Uniform Covenants
• Governing law
– Severability
– Rules of construction
• Borrower's copy
• Transfer of the property or a beneficial
interest in borrower

11. Uniform Covenants
• Borrower's right to reinstate after
acceleration
• Sale of note
– Change of loan servicer
– Notice of grievance
• Hazardous substances

12. Nonuniform Covenants
• Acceleration
– Remedies
• Release
• Waivers
• Homestead exemption waiver
• Redemption period

13. Commercial Mortgage Provisions
• Assignment of rents and leases
• Security agreement
– Covers personal property
• Books, records, and financial statements
• Hazardous waste

14. Commercial Mortgage Provisions
• Nonrecourse or exculpation provision
– In event of default, the lender will not foreclose
on the personal possessions of the debtor
• Cross-collateralization and cross-default
– Portfolio loans
– Each parcel of property is security for each and
every loan

15. Checklist: Preparation of a
Mortgage
• Parties
– Mortgagor or grantor
• Record title owner of the property described in the
mortgage
– Mortgagee or grantee
• Creditor and holder of the note being secured by the
mortgage

16. Checklist: Preparation of a
Mortgage
• Description of property to be conveyed
– Accurate description of real property and
associated personal property
– Include easements appurtenant to the secured
property
• Cross-access easements
• Off-site utility easements

17. Checklist: Preparation of a
Mortgage
• Indebtedness
– Amount of indebtedness
– Final maturity date for payment of indebtedness
– Open-ended or future advance provisions
• Security agreement
– To be included if personal property is part of the
security

18. Checklist: Preparation of a
Mortgage
• Assignment of leases and rents
– To be included if property is a commercial
investment or income-producing property

19. Checklist: Preparation of a
Mortgage
• Miscellaneous mortgage covenants
– Payment of indebtedness
– Escrow for taxes and insurance
– Application of payments
– Hazard insurance
– Preservation and maintenance of property

20. Checklist: Preparation of a
Mortgage
• Miscellaneous mortgage covenants
– Lender's right to inspect
– Condemnation
– Lender's right to cure defaults
– Due on sale
– Prohibition on secondary financing

21. Checklist: Preparation of a
Mortgage
• Miscellaneous mortgage covenants
– Financial reporting
– Events of default
– Remedies on default
– Provision for giving notices
– Choice of law
– Forbearance not a waiver

22. Checklist: Preparation of a
Mortgage
• Miscellaneous mortgage covenants
– Waiver of homestead and other debtor's rights
– Indemnity against hazardous waste
– Any other indemnities or provisions relative to the
transaction
– Cross-default with other loan documents
• E.g., assignment of leases, construction loan
agreements

23. Checklist: Preparation of a
Mortgage
• Signature
– Mortgagor or grantor is only party to sign
mortgage
• Corporate mortgagor or grantor
• Partnership mortgagor or grantor
• Limited liability company mortgagor or grantor

24. Checklist: Preparation of a
Mortgage
• Signature
– Mortgagor or grantor's signature is witnessed and
notarized with sufficient formality to permit the
mortgage to be recorded
– Mortgage is recorded to protect mortgagee's
priority against future purchasers or mortgagees

25. Miscellaneous Commercial Loan
Documents
• Security agreement and financing statement
– Article 9 of the Uniform Commercial Code (UCC)
– Security agreement
– UCC-1 financing statement
• Debtor's name and address
• Creditor's name and address
• Description of personal property
• Description of real property on which the personal
property is located

26. Miscellaneous Commercial Loan
Documents
• Assignment of rents
– All leases and rental income from the real
property are assigned to the lender
• Construction loan agreement
– 10 percent retainage held by the lender until the
construction is completed
– Lenders usually require a certificate of occupancy
for the final advance

27. Miscellaneous Commercial Loan
Documents
• Construction loan agreement
– General events of default
• Violation by the borrower of any covenant or promise
• Filing of mechanic's liens for labor or materials or liens
for unpaid taxes
• Litigation against the borrower or the real property in
connection with the construction
• Abandonment or stoppage of construction
• Use of improper materials or failure to follow the plans
or specifications

28. Role of the Paralegal
• Similar to other legal documents, the
preparation of mortgage loan documents
requires accuracy and attention to detail
• Most mortgage forms are electronic
– Paralegals create transactional documents using
word-processing technology
• Foreclosure of a mortgage loan

29. Ethics: Misrepresentation
• A paralegal should never engage in
professional misconduct, including dishonesty
and willful misrepresentation
• Remaining silent after having given out false
information concerning the content of a legal
document constitutes dishonest and willful
misrepresentation

30. Summary
• Mortgage documents should address every
conceivable issue and problem that could
arise during the term of the mortgage loan
– Taxes, insurance, resale of property, and rights
and remedies for default
– Commercial lenders may require UCC filing
statements on personal property

31. Summary
• Terms of a mortgage negotiated between the
borrower and the lender
• A mortgage loan is only as secure as the
borrower's title in real property
• Paralegal should be familiar with mortgage
provisions and their effect on the borrower
and the lender