Ch3. Mortgage & Deed of Trust Liens — Secured Interests in Real Property

Mortgage Basics

Mortgage / Deed of Trust:
A security interest in real property given to a lender
to secure repayment of a loan

Key parties:
Mortgagor / Trustor: borrower (property owner)
Mortgagee / Beneficiary: lender
Trustee: neutral third party (in deed of trust states)

Recorded lien:
Recorded in county land records (deed of trust or mortgage)
Creates constructive notice to subsequent buyers and lenders

Foreclosure:
Lender's right to force sale of property upon default
Proceeds used to repay the secured debt

Lien release:
Loan paid off → lender records Deed of Reconveyance or
Satisfaction of Mortgage to release the lien

Home Equity Line of Credit (HELOC) & Junior Liens

First mortgage / senior lien:
Primary loan secured by the property
Has highest priority in foreclosure proceeds

Second mortgage / junior lien:
Additional loan secured by same property
Subordinate to first mortgage

HELOC:
Revolving line of credit secured by home equity
Variable credit limit; draws and repayments ongoing

Junior lien priority:
Determined by date of recording
First recorded → first paid in foreclosure

Maximum lien amount:
Lenders typically lend up to 80% LTV on first mortgages
HELOC + first mortgage combined often capped at 80–90% LTV

Leasehold Interests & Recorded Interests

Leasehold interest:
Tenant's right to use property under a lease agreement

Long-term lease recording:
Leases over 1 year are typically recorded in many states
Provides notice and some protections to tenants

Lease vs. ownership:
Ownership (fee simple): full property rights, recorded deed
Leasehold: contractual right to use for a term, recorded lease

Residential Lease Protections:
State landlord-tenant laws govern most residential leases
Federal Fair Housing Act prohibits discriminatory leasing

Lease recordation:
Not universal, but recorded leases survive certain ownership
transfers (varies by state)

Easements & Other Encumbrances

Easement:
Right to use another person's land for a specific purpose
Examples: utility easements, access easements, drainage

Easement appurtenant:
Runs with the land; benefits a neighboring parcel
Disclosed in title search and property records

Easement in gross:
Personal right (e.g., utility company right-of-way)
Does not transfer with property sale automatically

Prescriptive easement:
Created by open, continuous, hostile use for statutory period
Similar to adverse possession

Restrictive covenants / CC&Rs:
Limitations on property use recorded in deed or plat
Enforced by HOA or neighboring owners

Lien Priority = Recording Date ★★★★★ : First recorded lien has first claim on foreclosure proceeds. Junior liens are paid only after senior liens are satisfied. Memory hook: First recorded = first paid

Deed of Trust vs. Mortgage ★★★★★ : Deed of trust uses a trustee; mortgage is a two-party instrument. Most US states use deeds of trust for residential loans. Memory hook: Deed of trust = 3 parties; mortgage = 2 parties

Statutory Right of Redemption ★★★★☆ : Some states allow borrowers to redeem property after foreclosure sale within a set period. Varies significantly by state. Memory hook: Post-foreclosure redemption = state law dependent

Practice Quiz

Q. Why do lenders typically set loan amounts at 80% LTV or below?

The 80% LTV threshold avoids private mortgage insurance (PMI) requirements and provides a cushion if property values decline. If the borrower defaults and the property is sold at a loss, the lender is more likely to recover the full loan amount. Borrowers who exceed 80% LTV are generally required to carry PMI until equity reaches 20%.

Q. How does a recorded deed of trust protect a subsequent buyer?

Recording creates constructive notice, meaning future buyers and lenders are presumed to know about the lien regardless of actual knowledge. A title search will reveal all recorded liens. Buyers must ensure liens are paid off and released (reconveyed) at or before closing, typically handled through escrow. RESPA and TRID rules require that existing liens be disclosed on the Loan Estimate and Closing Disclosure.