Theory of Title Essay Example for Free

Theory of gentle EssayThe submit of are was selected as the example bring up because of its proximity to surrounding conserves of Tennessee, disseminated multiple sclerosis, Missouri, and Okalahoma and the frequency in which individuals change their conformation between the surrounding put forwards. The re anticipate examines the type of real res publica interchange supposition practiced in the suppose of atomic number 18 by reappraisaling germane(predicate) sequel fair plays, owe practices and supplementary materials dealing with compress uprightness and collection of rents.The literature tends to suggest that are does that practise each plane sectionicular lien possible action and utilizes a combination of each of the iii lien theories. The Outline I. Introduction II. General definitions of tercet theories governing en surname of respect impartation in United soiled estates of America a. Title surmisal. b. Lien Theory c. Intermediate surmis al IIIGeneral effect of theories in practice a. Effects for the lender b. Effects for the borrower IV. Transfer of cognomen in the State of Arkansas a. Prevalent conjecture used in State of Arkansas b. examine of legalitys and regulation governing transfer of surname in Arkansas .Throughout the United States the rate of housing foreclosures or mortgage slacknesss continues to develop at an alarming rate. This rise in foreclosures and mortgage defaults in legion(predicate) instances can be attri buted to a weakening economy. Many individuals enticed by a strong economy freely entered fit outments to get al-Qaidas with little cypher to the actual call of their covenant. A picture of these individuals would usually find young adults in a dickens to three person household, who in the end obtained the opportunity to live the American dream and took full wages of that opportunity.For many of these individuals this whitethorn prolong been their first position purchase or with decreasing pertain rates they believed they could finally afford to remodel their present home to be their dream home. These very(prenominal) individuals kfresh little about twists and turns of buying a home or mortgage finance laws. Many did not use lawyers and simply relied on the advice of the lenders, mortgage companies or real estate agents. Unfortunately, the economy failed to cooperate as those families with devil person incomes dropped to genius person incomes and those ad scantilyable rate mortgages increased beyond household income.The end result is a windy housing market with individuals actually losing their homes in drastic numbers or selling their homes at minify prices, which usually means a lost for the average home owner. It affects their ability to purchase a new home and decreases the amount of funds that will be available to local economies through the purchase of different(prenominal) consumer goods. Because our country has become so mobile, b ooking individuals to move from place to place with ease, many individuals had no problem pickle new areas in various states to call home.Examples of the easy mobility concept are individuals living in the State of Tennessee who find it extremely easy to purchase a home in Arkansas or Mississippi and maintain their jobs in Tennessee. In fact, with the growing pressure to leave the fast life and crime oft sequences found in large Metropolitan areas, individuals jumped at the opportunity when confronted with advertisements from small suburbs or rural cities which boosted of the simmer down simple life to raise their families while lonesome(prenominal) minutes away from the recreation, entertainment and lucrative employ opportunities of the Metropolitan cities.It was the dream of a life period that many simply could not pass up. intelligence mortgage finance laws of the State an individual intend to purchase a home or savvy mortgage alter theories is extremely necessary and impo rtant to any individual relocating to another state or those who have lived in a state and purchase their first home. Unfortunately, most individuals seeking to relocate hire and wrongly so, that the laws regarding mortgage finance are the same throughout the United States.They are unaware of the procedures or consequences involved in retaining their attribute should they become delinquent in their mortgage payments. When an individual moves from one state to another they subject themselves to the laws of the state in which they are doing business. However, in some states an individual may be able to specifically contract that the mortgage or contract may be governed by the laws of another state. This is seldom used for individual residential mortgages and used primarily in some commercial proceeding that occur in another state. owe laws in their new state may or may not be to their advantage and they should know the advantages and disadvantages before they decide on purchasing a h ome in their chosen state. This is also true for businesses financial institutions lending funds, and other entities crossing state lines to pass business in other states, i. e. , purchasing businesses or other keeping or obtaining gives in other states to conduct business in the State of Tennessee.The customary belief of the average individual is that once they purchase a home or obtain a mortgage, the title to the property is placed in the secernate of the borrower and that a lender simply obtains a lien on the property and can only veto on the property when and if the borrower is unable to make payments and then, and only when an action is filed in a court of law. This may or may not be true based on the laws and practices of the State in which the effect originates.Thus, a review of the laws governing the state in which the individual intends to obtain its mortgage will elevate extremely proficient. However a greater benefit will be obtained if the home buyer seeks th e go of a licensed attorney or a home buyer counselor. This senior project has chosen the state of Arkansas to review its laws regarding the transfer of title in real property. Arkansas was selected because of its proximity to the State of Tennessee and Mississippi and the ease in which residents move their residency from one state to the other. Thesis Statement) Individuals entering into financial agreements to obtain funds to purchase real property should always know which of the three theories of real property transfer is practiced in the state in which they intend to obtain a mortgage. Literature Review The purpose of this senior project is to first review the three general theories governing real estate transfers as practiced throughout the United States, and how they can affect the transfer of property from a lenders locating and from a borrowers perspective.The project will also review the present status of mortgage lending and home buying throughout the United States and h ow the theories of title transfer has affected the present market. The project uses the State of Arkansas as the example state for its review and analysis. The project will explore and review how the laws in the State of Arkansas differ from other states in the United States and review the effects of such laws on individuals and businesses doing business within the State of Arkansas.Determining what surmisal is utilized within a particular state when obtaining a mortgage or transferring real property will prove extremely beneficial and exempt serious problems for both the lender and borrower, should problems arise regarding ownership of the property, or in foreclosure proceeding. Knowing ones chastises will serve well the homebuyer in beneathstanding what can happen to their property if they should become delinquent in their mortgage payments and allow them an opportunity to attempt to save their property or their equity interest should a foreclosure action be filed against th em.The review will also examine how the failure of borrowers to understand property transfer theories can have a devastating affect on their ability to retain ownership of the property during a foreclosure action. training released from Foreclosure Data online and posted on October 19th, 2007 indicate that the growing number of mortgage foreclosures has begun to affect more(prenominal) than just residential homeowners, in some residential blocks where ten to twelve homes in a twenty- v home block, have bank owned for sale signs on their lawns.The rising rate of foreclosures throughout the United States try justification for the idea of borrowers taking more responsibility in determining their rights and the potential consequences when entering mortgage contracts where ever they live. In order to understand what happens if default occurs residents must always be aware of the three basic theories practiced throughout the United States relating to transfer of title and then attempt to understand which theory is actually practiced in the state in which they desire to purchase real property.This is especially relevant as many state fail to practice a single theory and combine some(prenominal) theories to develop a single procedure for dealing with property transfer in their state. For the most part title theory of a particular state is determine by case law, even in situations where states have adopted statues defining how title transfers will be conducted in their state. General Definitions of title transfer theories Following a broad adoption of side pure title theory by the American States, three theories of title have evolved.According to the Restatement Third of Property and (Mortgages), the evolution of title theory from the English public law has served to reduce the rights of the mortgage holder under the pure or original title theory of Eng cut. The pure title theory worked a defeasible conveyance of the fee to the mortgage holder, which obtained le gal title, the right to obstinance, and the right to collect the rents and profits. (2) This evolution included the development to (a) lesser title theory, (b) lien theory, and (c) intermediate theory. While the three theories are useful for comparisons, implementation of the theories is by no means standard.The practical effect of the theories has been minimized because in many jurisdictions the harshness of pure title theory has been removed by statue or by case law or in many instances the drafters of mortgages have learned to achieve the advantages of the alternative theories at the time the mortgage documents are prepared and signed. According to sandlike Gadow, an escrow expert, and a member of the American Land Title Association, in a title theory state, the borrower does not actually keep title to the property during the loan term.The seller gives the buyer/borrower a exercise to the property but when the borrower signs the mortgage for the loan the borrower gives the tit le second to the mortgage holder. The lender then holds title to the property, as security only, until all loan payments have been made. During that time the borrower has the right to self-discipline of the property, and the lender delivers the deed back to the borrower only after the loan obligation has been satisfied. (3) In most states the instrument used is known as a trust deed. The lender actually maintains ownership of the property until the debt is paid in full.The process is quite different in a lien title state. The Restatement (third) of Property, section 4. 1 (1997) indicates that in a lien theory state, the buyer holds the deed to the property during the mortgage term. The buyer promises to make all payments to the lender and the mortgage becomes a lien on the property, but title remains with the buyer. The lenders lien is removed once the payments of all loan payments have been completed. (id 2) The two theories are similar in that they allow the borrower to actually possess the property but differ regarding actual ownership of the property.In a title theory state the borrower actually owns the property with the lender retaining the deed only for security whereas in a lien theory the buyer retains the deed and the lender retains a lien on the property. The third theory, the Intermediate theory can be considered a compromise theory between the title theory and the lien theory. Again, according to Sandy Gadow, an escrow expert, and a member of the American land Title Association, the title remains with the borrower, but the lender may take back title to the property if the borrower defaults on the loan. (Id at 3).An Arkansas Law review article in 1992 examines the effects of conflict of laws, and indicates that in an intermediate jurisdiction the mortgage is a lien until default, as it would in a lien theory state. Upon default, legal title passes by operation of law to the mortgagee and with the title comes the right to possession, rents and pr ofits. (4) In her article, Sandy Gadow argues that Foreclosure proceedings in a lien theory state may be more vexed for the lender than a title theory state, due to the fact that the buyer is holding title to the land and not the lender. ( Id at 3).The theory prevents the lender from entering onto the property and taking possession of the property at will. The lender is forced to take legal steps to regain ownership of the property. The theory actually gives the borrower more time before they are forced to give up the property, and they also can continue to maintain possession of the property and keep any rents collected as a result of their ownership until a legal foreclosure action is completed. Today, mortgagees customarily profit from interest. Possession by the mortgagor is commonplace in title theory states, although some states still hold that possession remains with the ortgagee as an incident of legal title. other real estate treatise reports that title theory mortgagees can take possession of the mortgaged property upon default and before foreclosure. (6) A borrower to a mortgage should always concern themselves with which theory will give the greatest ownership interest in their property and allow them to retain interest in the property as long as possible. Any theory that readyly transfers the right to possession, fee simple ownership and any other legal rights from the borrower back to the lender are not in the best interest of the borrower.The literature thus far appears to suggest that a lien theory state would provide the better advantage to a borrower in that the borrower usually retains a right to ownership and possession until foreclosure is accomplished in a court of law. Many states within the United States adopt a lien theory when transferring property. However, like Arkansas, these same states do not exercise a hard and fast rule on the use of a title transfer theory. However, most states can be grouped in one of the three title theo ry categories.In general throughout the United States, approximately of the fifty states only sixteen states follow a lien theory, with the remaining thirty four (34) states being described a title theory states. More specifically of the six states that share a boundary with the State of Arkansas, which include Texas, Oklahoma, Missouri, Tennessee, Mississippi and Louisiana, five of the six states are described as practicing a title theory in property transfers, and only one of those states, Louisiana is described as following the lien theory in title transfers.In Arkansas, in the case of Bank of oak tree Grove V. Wilmot State Bank, a case considered as an self-assurance on Arkansas Mortgage law, the court refused to adopt a particular theory on the formality of what the court termed the broad and undefined a principle as lien versus title theories of mortgages. (5) In general Arkansas courts do not appear to have frequently discussed title theory since a search of Westlaw for tit le theory in Arkansas produces only Bank of Oak Grove v. Wilmot.However, several cases range themselves and follow the decision of the Bank of Oak Grove case and its findings. Such cases cite the bank of Oak Grove case as an endorsement of title theory use in the State of Arkansas. fully discerning the nature of Arkansas theory of title requires a discussion of whether a mortgage is barely a lien (lien theory) or whether it passes owner-type interest and powers to the mortgagee. A survey of Arkansas mortgage case law reveals two tracks of cases supporting different conclusions about whether a mortgage is only security for a debt.As early as 1856, equity held that a mortgage is only security for a debt. (7) By 1866, the Arkansas positive Court established that now in both law and equity a mortgage is mere security for a debt, and removed the presumption that a mortgagee takes possess if there is no proof other wise. (8) Eighteen years after Trapnall, the court said that the legal estate in mortgaged property passes to the mortgagee and that possession follows the egal title the same was said 45 years after Trapnall in a 1911 case, Whittington v. Flint. (9) If it follows that legal title not only delivered possession but also delivered what a 1988 Arkansas Federal court interpreting Arkansas law called the incidents of possession (rents, profits and what appears as beneficial interests), Arkansas would have been a title theory state. The Arkansas Supreme Court has not turn these cases, and the Arkansas lawyer General was citing the case as late as 1998. 10) After Wilson, the Arkansas Supreme Court held that in equity a mortgage is only a security interest, and that the mortgagor is authorise to deal with the land as its owner, entitled to rents and profits and alienation as long as he is in possession and he and takers under him do not impair the rights of the mortgagee. (11) The 1959 update of a come upon Arkansas mortgage title treatise follows that a m ortgage is a mere security interest.The mortgagors were treated as owners in a 1980 case that characterized an absolute deed held for security purposes as an equitable mortgage, finding that the induce who purchased the real estate was the mortgagee and holding that the divorcing son and daughter-in law must split the property. This inferred that the son and daughter-in-law were mortgagors and in effect owners of joint property. (13) The lack of clarity on some points suggests that mortgagors should not rely on the formalness of title theory in the State of Arkansas.Possession, Redemption and Rents as they relate to title transfer in Arkansas Better understanding Arkansas law requires discussions about possession, redemption and rents. The custom in Arkansas is that the mortgagor takes possession, but case law suggests that possession may be based on the terms of the agreement or interest rather than accruing automatically to the holder of legal title. More recent opinions relieve towards possession being retained by the mortgagor.Similarly, the Arkansas Attorney General opined that the 1980 Nelson court took a common sense approach holding that the mortgagor retains a possessory interest that makes him at least the equitable owner. (14) This suggests a conclusion that possession can be devised by the contract diction, which can grant immediate possession or possession upon default. Not withstanding the language, mortgagees are likely to intend that possession be in the mortgagor, and mortgagees are likely to want to avoid mortgagee in possession status and the duties that derive from it.To preserve its collateral, the mortgagee should include articles providing for (1) appointment of a receiver and (2) right to enter and inspect. A power of sale clause may be advisable however, the Arkansas Code implies a power of sale in both mortgage of real property. (15) Arkansas does not follow title or lien theory or intermediate theory as the latter is described by secondary sources. Like title theory, the mortgagee appears to secure legal title. The more recent cases appear to treat the mortgagor as the owner as would be the case under lien theory.Arkansas appears to practice its own brand of intermediate theory in which the incidents of possession follow actual or constructive possession. Drafting may govern possession and rents in Arkansas law. The literature and case law indicates that the custom in Arkansas is that the mortgagor takes possession, but case law suggests that possession may be based on the terms of the agreement or intent rather than accruing automatically to the holder of legal title. In the case of Whittington (1884) and Wilson (1911 held that legal title passes to the mortgagee and with it possession, unless there is a reservation of the right to occupancy. Id 9) Trapnall held in 1866 that there is no presumption that the mortgagee takes possession. (Id. 8) more or less recent opinions mitigate towards possession being retained by the mortgagor. The First Federal case intercommunicate the incidents of possession, saying that in a garden variety mortgage, the borrower has retained all of the incidents of possession including the right to rents, profits, and crops, and he may do with them as he pleases until the mortgagee takes possession, at which point these incidents pass to the mortgagee.Similarly, the Arkansas Attorney General opined that the 1980 Nelson court took a common sense approach holding that the mortgagor retains a possessory interest that makes him at least the equitable owner. (Id 14) Neither opinion states that the mortgagor and mortgagee can not agree otherwise. This suggests a conclusion that possession can be devised by the contract language, which can grant immediate possession or possession upon default.In comparing the cases, it may be helpful to note the references to the language of the agreements, and consider that the language of Arkansas mortgages has varied greatly. W hittington states that possession follows the legal title, unless controlled by stipulations in the deed, or by the apparent intention of the parties. (Id. 9) It is an old case that may have succumbed to the presumption that Trapnall dismissed. American Jurisprudence publishes in its form book what it titles the Arkansas-Mortgage and the Arkansas-mortgage-Traditional form.The traditional form is more in the form of a sale agreement stating that mortgagee does grant, bargain, sell, and convey to mortgagee, and to its successors and assigns forever the mortgaged property to have and to hold the same to mortgagee, and to its successors and assigns forever. It then provides the conditions under which the sale shall become null and void. (16) Notwithstanding the language, mortgagees are likely to intend that possession be in the mortgagor, and mortgagees are likely to want to avoid mortgagee in possession status and the duties that derive from it.It is unmingled that despite the rules and statues individuals seeking to obtain a mortgage will need to be mindful of what the law is and if they desire that something different needs to occur on any matter, if the issue is addressed in the contract agreements and agreed to by both parties, the courts will upon the original intent of the parties entering the contract. Treatment of Rents in Mortgage transfer In understanding actual practice regarding ownership interests one must also review and discuss how rent is treated in the State of Arkansas.