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Creditors Rights
University of Dayton School of Law
Morris, Jeffrey B.

Creditors’ Rights (Bankruptcy) Outline
Fall 2009, University of Dayton School of Law, Professor Jeff W. Morris
Problems and Materials on Debtor and Creditor Law, 3d Edition, Whaley & Morris
Verdana 10 is for statutory text.
Arial Narrow 13 font is from my class notes.
Verdana 11 font is for material from the Third Edition Teacher’s Manual
Lucida Sans 11.5 font is for stuff from borrowed Outlines
Gautami 12 font is for the Nutshell on Bankruptcy
Purple Text is for quotes from the Constitution.
Green Text is for policy statements.
Grayed-out text (like this) is for parts of the book Professor Morris skipped (but he wrote it so I doubt he’ll skip much).
Red Text is for definitions or important points to be memorized.
Highlighting and boldtext are both notable in some way.

Introductory Property Law Materials 1
Additional Class Notes on Property Topics_______________________________________________8
1. Introduction to debtor and Creditor Law 15
2. Commencement of the Case and Eligibility for Relief 32
3. The Bankruptcy Estate 61
4. The Automatic Stay 95
5. Claims 114
6. Discharge 129
7. Avoidance Powers 159
8. Chapter 13 Cases 200
9. Reorganization in Chapter 11 249
10. Family Farmer Reorganizations 344
11. Jurisdiction 344
Glossary 351
Acronyms, Initialisms, and Alphabetisms 352
Indexes 354
End 370

Introductory Property Law Materials.
A. Real Estate Finance in a Nutshell (6th Edition).
Chapter 1. Introduction to Law of Real Estate Finance. The mortgage is the cornerstone of real estate finance.
I. Mortgage Concept.
A. Definition and Description. A mortgage is the transfer of an interest in land as security, usually for the repayment of a loan, but occasionally for the performance of another obligation. A landowner borrows money and enters a written agreement that the landowner’s real estate is collateral for the loan. The landowner-borrower is the mortgagor. The lender is a mortgagee.
B. Obligation/Security Distinction. A mortgage exists solely as security for an underlying obligation, ordinarily a promissory note. Consequently, every mortgage lives, travels, and dies with the obligation it secures.
C. Statute of Frauds. A mortgage falls within the Statute or Frauds. They must be in writing. Equitable principles may dictate that a mortgage arises by operation of law or is enforceable even though it is unwritten. As a general rule, simply lending money does not constitute sufficient part performance to take an unwritten security arrangement out of the Statute of Frauds. An equitable mortgage may arise by operation of law. Such a mortgage is not subject to the Statute of Frauds. Hardship may be considered to constitute sufficient part performance to satisfy the Statute of Frauds, thereby rendering an oral promise enforceable.
II. Historical Development of Mortgage.
A. Defeasible Fee as Financing Device. At early English common law, a mortgage was simply a deed of a defeasible fee from the mortgagor to the mortgagee. If, however, the debt was not paid at maturity, the mortgagee’s defeasible fee became a fee simple absolute. The law courts strictly enforced the time for payment.
B. Equity of Redemption.
1. Creation and Growth. If a mortgagor could establish a sound reason for failing to perform as agreed in the mortgage, equity would permit the mortgagor to recover the land by paying the debt after the maturity date. This right of late payment eventually was extended to all mortgagors without regard to the existence of individual equities and became known as the equity of redemption.
2. Preservation/Clogging. Any clause in the mortgage or in a contemporaneous agreement that has the effect of eliminating or impairing the mortgagor’s equitable right to redeem is termed clogging and is prohibited. The courts’ protective approach in this regard gave rise to the maxim: “once a mortgage, always a mortgage [and not a defeasible fee.]”
C. Foreclosure.
1. Strict Foreclosure. The defaulting mortgagor’s right to redeem (Equity of Redemption) effectively prevented the mortgagee from selling or improving the mortgaged property. The English equity courts thus came to the aid of mortgagees by developing the concept of foreclosure of the equity of redemption. After default and at the mortgagee’s request, the equity courts set a time period within which the mortgagor was required to pay the debt or lose the right to redeem. If the mortgagor failed to pay within the period specified, the mortgagee obtained a fee simple absolute. This method of terminating the mortgagor’s equity of redemption became known as strict foreclosure.
2. Foreclosure by Sale. Strict foreclosure was inherently unfair to the mortgagor because the value of the mortgaged land acquired by the mortgagee frequently exceeded the debt. The rest of this chapter deals exclusively with the evolution of real estate finance law in this country. Equity again readjusted by requiring forecl

D. Practical Significance of Mortgage Theories. Even in title and intermediate theory states, the mortgagee’s rights as erstwhile legal titleholder generally have been eliminated where unnecessary to protect its security interest. The primary distinction among the title, intermediate and lien theories, therefore, is with respect to the right to possession. Even this difference often is obscured by a mortgage clause that spells-out the rights of the parties regarding possession.
IV. Modern Financing Formats. Although the mortgage is still the foundation of real estate finance, many sophisticated financing variations exist today. These may employ a combination of mortgages, leases, installment land contracts, outright conveyances, or other arrangements.
Chapter 9. Priorities.
I. General Principles. When foreclosure is imminent, the mortgagee and other parties holding interests in the mortgaged property become particularly concerned about the priority of their respective interests. Interests acquired before the mortgage survive foreclosure; those acquired after the mortgage are extinguished. The mortgage and subsequent interest holders are paid from the proceeds of the foreclosure sale in the order of their priority. Proceeds may be insufficient to pay everyone.
II. Recording Statutes. The principle “prior in time, prior in right” determines the order of priority among interest holders in the mortgaged property unless a subsequent purchaser fits within the protection afforded by the local recording statute. Recording statutes vary. Depending on the jurisdiction, a subsequent purchaser must either (1) be without notice of the prior interest (notice statute), (2) be without notice of the prior interest and record first (race-notice statute), or (3) record first (race statute). In all jurisdictions, the prior interest holder may preserve the holder’s original priority position by recording the interest immediately following its acquisition. Mortgagees commonly turn to title insurance for assurance of lien priority.