Untitled document - Benny Brankoff Discussion#9 Part 1...

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Benny Brankoff Discussion #9: 10/4/17 Part 1 Priority and Termination of the Mortgage A debtor borrowed $350,000 to finance the purchase of a house, and the bank recorded its interest on July 1. On July 15, the debtor bought $10,000 worth of replacement windows from Window Co.; Window Co. recorded its purchase- money security interest that day, and the windows were installed. Four years later, the debtor, in hard financial times, declared bankruptcy. As between the bank and Windows Co., who will get paid first? The bank would be the one to get paid first because the general rule is that the first in time to give notice is the first in right. In the case of real property, the notice would be by recording the mortgage. Since the bank recorded the interest first on July 1 st , they would be the first to get paid instead of Window Co., who recorded on July 15 th . Under what interest rate circumstances would banks insist on a due-on-sale clause? Under what interest rate circumstance would banks not object to a new person assuming the mortgage? In fact, the main reasons for due-on-sale clauses is lenders want and need to know to whom they are loaning money and they need to be able to predict roughly when a mortgage will be paid off. If you loaned your car to a friend, who agreed in writing not to let anyone else use it, then you saw it going down the street with some stranger at the wheel, you'd be upset, and rightly so. By the same token, lenders do not like to loan one guy $100,000 to buy a house then find that someone else now has the house, especially when the new guy has lousy credit and/or inadequate equity or income.
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