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The Re&trtABIue Book ol Caklornia

L. H. RoSEBERRY
lice Prcsidcht
E..rnlt Tnrsl d sdrtrrr Rn,a
Lbt Atrlt.|ct
70 The Bacl,taBIue Book of Cdifornia

Mortgages,Notesand Trust Deeds


B? SENA?ORL. H. ROSEBFTRY

Note tke Prine Oblig%tiotl'-Suit Not otL Mottgage


Lcd,EeslJflall ! Assignpd- Tttt'olion on Mottgag?c- Cottr'
ii;ii Fiopniu- Re-lotion ol a D?Pd' Ttust Dced Qv;PI-
i g Title-Sqtisfaction of Mortgsge.

HERE is probably no single commoditythat is dealt in in such


volume dna by'so many people in California as real estate'
-"*-ciiti"vv.i shouldlinowwhat.liabilitv.vou Ttu-,"' Y!11
ii-uiili"*,
tiff" vo, in real estate,aDclthe securjtiesoffered l am
soiii io fi-it -v"eii to one phaseof bheproblem'the securitv tlat is
iiven for either part of tle purchasepricc or as secunly lor a roan
oI
-- money.
--firJi""t _ -
thins that a personshould realizeis that in making a
-ortgage ti" p.i--" obligafionis thenote. The mortgageitself is not
G" lt is ti;ote whjch it secureswhich is l,Ie obligatjon
"-bil?*U"r.-
-
iiiiJiie?i"iit'" t"t^tion of debtor and creditor. So necessarilv'that
p.iit" Jrri:g"ii". rvttl.h sr.pp-orlst he mortgage is ot importance,and
i,ou must seelhat it meetEall legal requirements' No note' whdher
;:ih;;;;;;t;; t"secured, ls l-egalunlessit is sr'mportedbv a cot-
sideration. fhat doesnot meanthat tbere must be moneyexchaDgeo'
Adequateconsiderationis anyt]ling that is given up. -arlghl'-surren-
dered or a value parted with: bul it must be a valrctconslderauon'
ti"i," ii" rtiiiv,l],it like samblins debts,-br a.note.held
l,o Dav for conLraband goods. Whisky is a conl,rabandat Lhls tlme'
"onsiclerations
ii tioti iii"" It p^v*enf of whiskv iltegalv soldcouldnot be enforced'
-.n; cofisiaetatiin-forit would be an illegal consideration;and a note
Uas"ea on an itteeatconsideratioD is an illegal note. A Dotemrrst be a
definileobligationto pay money. By that T do not meaDthat the date
musi te loi;ncalv set; bul it must be ai, sometime lhat is sure to
ii""o-"". i, pivabie at the death of lhe maker would be legal,
"ote not definiteas to time. deatl is sure 10 occu!
beiiuse alllrough
NOTES NOW NEGOTIABI,E
For6erly notessecuredby mortgageswere non_negotiable instfu-
ments- lecause thev had nohlions atl,aohedto theE to the effect that
ttt"y vere lry a mortgage. That destrovedlhe -notelq+9c91i&
tfi#. couldntt pass lrom hand lo hand. Bul that distinction
ffr"y""cu"ed
tli"l""" 46"" away wilh by recent action of the legislature,so that
now all notes that ire seculed by a mortgage or tr"-st deed otherwise
The Reaka BIue Book oI Califotwitt

negotiable in form are negotiable instruments and are good against


atry defensesthat exist in favo! of the original maker. I meao a note
that is executed under fraud, or lack of consicleration,or illegal co!-
sideration, or any of those defensesor offsets or counter'claims that
couldhave beenset up by the maker in its defense. Thosecannotbe
ulged if it is a negotiable note.
Notessecuredby a mortgagemust have revenuestampsattached.
But the failure to attach stamps doesnot afrect the validity of hh€
trote; however, under the revenue act of 1913 there is a penalty for
failure to attaEh stamps.
There are joint arld several notes which carry differ€nt liabilities.
A joint noteis a rote signedby more than oneperson;and the liability
iBin severalbut it is a joint note. A full claim ca[not be had against
onesig3ler. If bhenote is joint and several,the maker can electto sue
any one of the signel's; notes that are joint and several can be
collectedfrom each and all.
COODPLACE TO BE CARE!'UL
Many times notes.are signed in a representativecapa.ity; ard
youshouldscrutinizesuch noteswith a great dealof care,becausethe
lia.bility is fixed by the power of the person signing. An executor or
admilistrator canlot execute notes, or mortgages, or botow money,
unlessby order oI a court, under specialstatutory provisions. He
must tshowreasons for it to the court, and set up the prcperty to be
pledged, the amountto be borrowed;and if the court finds it a prcper
cose,the court authorizes the executot to borrow money and execute
a modgag€. You must fmt seethat this Lind of note is predicated
on thesecourt orders.
A note executedby an attorney in fact mu,stbe carefully watched.
A guardian,a trustee and all types of judiciaries and p€olle who
teFesent othets are limited in their powers; and if you accept their
obligations you must seetlat their power is broad enoughto bind the
priDcipals.
I am spea"kingof mprtgages now, and noi bond issues,although a
bord issue is a type of large mortgage securing a large series of
bon&. Bonds have becomeknown to the public as being elaborately
€Dgraved things, securedby a deed of trust and usually retileal in
csitain prescribed ways; but in fact are nothing more or less thal
a secuteoiole.
f'he statutory definition of a mortgage is i
"It is a contract by which speciic property is ht?othecated for
the performance of an sct, vritlout tle necessity of a change of
po$ession."
That is the ditrerence betweena drortgage and a pledge. A pledgp
is not valid unless there is a change of possession; but thst is not
saly with a mortgage. There is no change of possession in cale
of a mortgage.
DO NOT SU! ON MORTCAGE
The morigageitself is merely security for l,heno[e. It is not the
tlat is sued upon. I1 is foteclosed to secure paynent of th€
The note is the pimarv obligalion; the thing which is sued
't2 TlLe Re11,Ltu
BkLe Book of Catifornia

Necessarilythe mortgagemust have definitereferenceto the note


which it secures, The usualfashion is to €mbodyin the mortgagean
exact copy of the note. Good practice requircs the signature on the
[ote embodiedin the mortgage,as well as the sigEture to the note
lllet is separaLe lrom th" mortgage. That is not the commonpracjicp,
but i[ is a goodpraclice. Then if a questionarisesas jo lhe eiecution
of the note you have proof that the note was signed;and trhesecurity
is definite.
It is quite a commonpracticewhen notesmature, raiher than to
execulea new noteand entailingall l,hatexppnse. io grant an exlen-
slon oI tlmp or rpnewal. Thrl is donFby a shorl wriHen form of
@ntract.
Like any other instrument a mortgage requires no recordation
to m4keit valid as between[he partics lo it. It is only doneto protect
innocenlparties. 'I'hepracticein this communilyis to haveaierliff-
cateof lille broughtdown.showingthe mo gage. That is usually
done at the expenseof the bonower. Usually l,he transaclion is
accompanied by a. transfer of fire insurance policy, adequately en-
dorsed $rith a rrortgage clause. Unless that is done the irisurauce is
not collectibleby the mortgagee.and a substantialpaft of the security
nDght be tost in caseof fire.
LEASESORDINARIT]Y ASSIOND
UjLall) leasesare assigned,or if no! assignedlhen lhe mortgeges
must be madesribject to lhe lease. A great many leasesare n6t ie-
corded,and the mortgageeswould not know of their existence.Never-
theless,jf the lesseeis in possession, the mortgageeis law-boundto
know-the righis of the possessorand takes thd riortgage subject to
the- righis of the lessee. The lesseeoften has sub;t;tial ;ights,
right to_renewalor option to purchase. Unlessyou inquire inl,o-the
rrghts of peoplein possession you are laking a great risk. Anybody
deallng wil.h real propert) must know the rights of people in
possesslon,
Taxes are an essentiall,hing to considpr. public liens are ahead
of a1lcontracturaliiens, and lhesp tax liens are often not of record.
Taxesaccrueafter tbe first Mondayin March; and belweenthat time
and the time lhey are paid con(racturalliens mav comeon the DroD-
erty, yet there is norhing on the recordsto indicaierhat. you shouid
seethat the questionof taxes is caredlor.
.. In. this mmmunily mortgage loans are handled customarily
l.hrough escrows. Olher liens musl,be removed,and ajj matters of
a_greementbetween the pa*ies settled before thi: money is paid and
tne mortgage papers delivered.
. Inter_estingquestionsarise in these escrows. The questionhas
arisen, aJter an escrow has been created, wlether the pafties may
t€Iininate it_beforeits consummalion,and before the de)iveryof the
mortgdge. It dependson whether there is a valid contra4tbe[ween
the parties at the time lhe escrowwas created. A goodescrowagent
acts carefully and will rot deliver papersin the face of nol,icesttthe
contrary. If in the notice to the escrowholder there is evidencethat
the pspers we-resecuredby fraud or someother illegal means,tben
thc escrowholder will immediatclysuspenddelivery.
TlLeR@Jty BIue Book ol Calilomin

In Califom.ia.saviDgsbankscan only loan on filtst modgages,un_


rtrey also notd the secondmortgage, and unlessthe two mort_
if they hold,both, will not exceeaeo p"r -"ni oi'ifre vrfoiif
!i'ages,
pFlrelty rtoltgaged.
As.betweeninnocentmortgage€s,the flIst that tecordshis mo!t-
: wins, But if the second iroirtgagee
trastnowteage of iiie exisl
Eloftgage, even though he records his mortgage first, his is sub_

Often.we find mortgagesproviding for flrlurp advances. It is


rsstuyIn such a rnortgage{,oinsert a clau,sestating the amountof
ruIuIe advancement.
WHEN TAXASLE
In California,morlgageson real properryare not subjectto taxes.
rey-fir-st,secondor third liens.
edin foreisrstates(sretes .qui nr6dgages ieal i;;;lt
outsidecaliforliiii""l,
"" iJiui" ri"iu.'
rne execuuonoJ a nrortgagein California has becomeinvolved
useoI the effect of the signaturesof malfied ;""pl;:---Afr ;;;;
slandrngrn the nameof a manied man js assumedlobe commun_
property.. Under a seclion of our Code a married man cannot
rgage,sucn property. or leaaeit,lor a term beyonda year without
uiei*"""-oi-ii"*if i:*,""YJl;l:
"l'ifi;#d.;fi
ij:1-":yi1t"^^i"^r1:. yithout "':'##"#';lfl
the.signature.
of his wife, beciuie
"il1h";
lender l,obe sa-fe
-musthavettre tacl estati:sf,ea'-tf,;.i'it
Fate property of the mortgagor.
Thewife haslhis advanta-ge-over
uheman: AII -personalproperty
clng rn thenameof a married womanis assumedto be corirmilrit!
:.+ll r:gl propenyconveyed ro a marrieil'";;-bv ;i
xt rn \.lTrtlngrs presumed
to be her separalepropety. ihjs
$umptionin.favor oI anyonehaving deajjngsrvlil n,ir, ii,-go"oU
faitfr
co-rcusrve., A,marriedvoman when she has leal property conveyecl
!er, Dy aD tnstrument in writing can alonesell or leaseit or mor.L
it; but a maried man caanol The assumptionis tlat ia is h;
ate property.
A GOODPOINT TO I(NOW
It_is.onlv recentlv"that it.became clear thal personalpropetty
tn-l.lt:-tr1peo-fa married woman
Hg Formerly some
€!ity, of -wasconsideretlcommlnity
, the -banksbe)i"r"d Lt*i 1li;y ;;;j;;;;l- -
ry wrth personalproperty in the handsof a malried ,o-r"-
lgs9n: w.oy]d.bulslocksand bondsfrom manied womm;thout
consetrtof l.heir husbands.thinking they were safe in doing so.
we now find that il is a risky prop-osition.
We find an appar€ntconlradictionin ihe presenl law, in that a
leo woDan
{rcu nuu4r car
can will part or
w l parr of rne
the comrnunrty
comhunity property,
property, yet
yet she
she does
does
ownerBhip
boalt 6eing'intir;";v;;-iil
,"#ft.T* fl""iii'*#r"
lbe achowledgment of a mortgage is noc an essentralDart of
eortg"ase,it only enti[es it to recofuation. L th;t
-Uliirli"i'ii,f'""i
r;d;fii
business l;
nec€ssity.I,tomo*gag" strouta fi
iledCegp{ tle personswhose signaturesare attachedto ii
thenrecordedin the'c*nty *t 16situated.
vou must see that tfie wife's rea)
"""-tifp"oper!y
signai,ure is attacha. ,Ihat
74 The Reo,l,taBLueBoolcol Caliloln l

brinss io mind some interesting situations that might be cr€ated.


The-SecuritvTrusl & SavingsBank took a morlgage from a man vrho
brousht in ; womanwho lookedlike she was his wife, and he said she
was iuch. She signedthe mortgage. Later, during foreclosure,an-
other woman claimed she wss his wife. Hef signature was not on
the mortsase: and lhe morlgageas to her was invalid. and we could
not forec'ioJe against her. We could have had the man arrestd for
.firi^itJrn"""v undel false pretensesas his wife did not sigr, and
tr"r was necessary to a valjdlien. But we did
and essential
"ieniru.e
FILL IN ALL BLANI' SPACES

Necessarily.in makingout moftgages' like wilh any otherpape13.


vou must exercisF good caution, and eee lhat the properry Is ctear ano
;dequatelv described,so adequatelythat the Sherifr can identily the
property ind give deedto sameon fo-reclosure sale. If the property
wain't iorrect]v described youl foreclosure proceedings would be to
l that extent defecl,ive. You shouldfill in all blank spaces. Jt is poor
'Dolicvto leaveanv bLankspacesin any legal document.
iI th"r" are to be partial releaseclauses,they should be definite
as [o amountand parcclsof land. Oneimport-antrule is that lhe rig]t
to securea partial releaseundera mottgagedoesnol stop w|th a Iore-
closureproceeding,that a panial releasecan be securedat any llme
up' to thi judgmenl,of foreclosureby the court.
Tbat ii panicularly impo*ant in connectionwith lhesereal estate
t, subdivisions. Often tracts are put on with underlying mortgages.
I,ots are sold to inrocent people who do not know about the under_
lvins mortsase. If the trtct docsnot go over. every contract might
6e riiuea out. Lot purchaserscould savetheir equity by paying the
rotal;f the modgagi,but it might be morethan the balance due upon
their contrach.
RELATION OF A DEED

Deedssometim€sar€ construedas mortgages. Somepeoplethink


thev can alefeata court foreclosureby use of a deedto securea loan.
It is usuallv done with lhe undeBtsnding lhat the deed can be
recordediI the debt is not paid. But in the evesof the law lhat makes
i[ a motlEace. and il must be foreclosedif pa]'nent is not made.in
which evmia y€ar is given in which to redeemlhe propedy for&
closed.
A bad thing aboutsuch, deedis that it doesnot securecostsand
attomeys' fees in caseof foreclosure,
As'l,oprioril,ies.morlgagesare subjectto all public liens. slch as
taxesand sireet bonds,etc. As against mechanicsliens' the onlv way
that a mortgage will fatl ahead of th€m is to have the mortgage on
the property before any contlsct is let for the building or any
materials purchased.
Often peoplethink the)'can recorda mortgagein the nature oJ a
building lotn and hotd the moneybackand disburseit a5 the building
Droqresses.That is not a safe praclice. becauspthe tighls of all
m.chanicswill falt in beforelhat moftgage.and the morlgagFic sub-
ordinate to the meclanics'liens.

ff
h
The Real,t! BLue Book ol Cd,Iilomi.a 75

BEST PBOTECTION
The only way to protect a building loan is to make a consrRnmated
passthe money to the credit of the borrower,and then hold it
an agreementto disburseit on the building wlen under con-
A mortgage recorded is ahead of a subsequently declared home-
, Under the laws of this state a wife may declare a homestead
any properly of the husband. Somptimesthe wifF, when she feels
her husbandis engagedin a precariousbusiness, u_illquielly place
homesteadon their property. That immediately attaches on a prop-
, whether i1 is a smcll houseand lot or a million dollar properl},
loDgas it is property uspd lor a home. That is prior to any subse-
mortgages, but it is not prior to mortgages then existing on
property.
TRUST DEED EXPLAINED
The oldina4r trust deed, with which you are familial, which v/e
interchangably with mortgages in general, is in the nature of t}le
metransaction,but it is handledin a different way. The legal title
the pmp€rty given as s€clTity for the debt is conveyedto a trustee,
tlle trustee does not take possession. The title r€sts quieily in
fuusteeuntil there is a default. It may be failure to pay interest,
to maintainadequateinsurance,to maintain pdolity of liens or
up premisesor any other of the obligationsof the maker that
a default. In such casethe beneficiaryof the rote has a right
denundthat the truste€ take action. Thet is doneby the trustee
ing notice of default and intended sale in the mauer provided by
. A{ter 90 days the Lrustcemay sell that properly in the manner
by the trusl deed,which is usually al pdvate sale. The
is conveyedby the tlustees to the successful bidd€r at the
s sale.'
In a modgage foreclosule, if the real property does not sel1 for
to pay for the amountof the judgment you get what is caued
y judgment" and may ihpn levy upon any other propedy
mortgagormay have until the judgment is satisfied. Thai isn't
with a hust deed. If the property doesnot sell for enoughto
the securednote, yolt must go into court and sue for the
. As far as full settl€ment of t}le borowe/s liabilities are
the mortgageis lhe bpst, allhough it takesmore time. On
wholethe mortgageis the safest security to use. It is the sole
usedby lhe Security Trust and SavingqBank lo protect its real
loans.
Sometrusteesrequire the acceptance, on their part of all trust
in which they are desi$lated trustee. The Title Insurance and
Company requires it. The Security Tmst and Savings Bank
nol know how many trusl depdsare outslandingin which il is
prjor
as Trustee,for that bank doesnot tequire acceptance
ult.
When taking a deed I,o feal properly there is quile a drff"i"ence
taking it 'subjecl,' lo lhe morlgage and taking il and
ing" the mortgage on that propedy. If you lake property
iect to a mortgage,"you are not personallyresponsiblefor the
t of the debt; but the property so taken Inay be sold to satisfy
-

Tke Ra tA Bl,ueBook ol Caklemia

it. ff you "assume the mortgage," you becomeprimarily liable for


the total amount of the mortgage debt; and a defciency judgment
ca.n be had against you, lvhereas no deficieucy judgment can be
rendered agai[st you when you take the prop€lty "subject to the
mortgage."
It is necessaryto understaldl that when you hold a moltgage on
a piece of property that you must be careful to preserve the moltgage
lien if the sane property is later deededto you. In such a case you
take both the legal and equitable title, which x'rill merge attd
extinguish the mortgage lien, unless you expressly recite in fte deed
that such titles shall not merge. You car keep those titles separate if
you put appropriate language into the conveyance. When the morL
gage lien is rus extinguished you cannot foreclose on the prcperty,
although you can sue on the note. It is alway8 possible to sue on the
noteand waivethe securily.
WITAT QUIETS TITLE
A mortgage foleclosure suit doesnot quiet title. As between the
modgagor and mortgageg it takes the prcperty int€rests and title
that was mortgagedr Such title might be defective, or arnount to little
or nothing of value. The sale under foreclosure proceedings may be
msde either by she ff or a commissioner appointed by the court for
that pur?ose.
There are some penal clauses relating to mortggge transactions.
One is, that it is a lenalty to substiiute another $oman for the mort-
gagofs wife when her signature is required. It is a crime to move
mortgaged propedy out of the county in which it is mortgaged with-
out the mortgagee's consent.
Cattle which are mortgaged in one county are often moved into
another county. All kinds of chattels sre often moved fmm coulty to
county. As a matter of fact thq mortgagor in doing this is often com-
mitting a felony. If prope*y is moved out of the county in which it
was mortgaged, the lien of mortgage ceasesunless that morgtage is
recorded in the cou[ty to *]hich the property is removed s/ithin thirty
days thereafter. Buildings, outhouses, windmills, fences, are some-
times removed from the propelty although ofginally subject to the
mo*gage, without the consent of the mortgagee. T'hat is a crime. It
is e larceny if the value is under $50. It is a felony if it is over $50.
PENAITY IMPOSED
There is a penalty of $100.00on the mortgageefor failing to sat.
isfy the mortgiage after paj4nent, or to give a certificate of satisfac-
tion for recordatiol. Sometimesa mortgage falls due and the holder
of the mortgag€ cannot be found. The mortgag€ money can be
tendered by depositing it in a bank, thus stopping interest, and a pen-
elty of $100 can be reco\eredagainsi the morLgagee.
In this city ve have a great many long term ground leases. In
many instances th€ leaseholdinterest is mortgsged without including
the fee. It becomesnecessarysometimes to defrne the rights of the
mortgagee, A leasehold in the eyes of the law is personal lroperty.
that is contrary to the commonunalerstanding. Although it is a right
to possessionin real prcperty, it is not an interqst in real property in
the sensethtt it is an estat€.

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