Mortgages/security devices - Necessity and nature of obligation

Learning Outcomes

After reading this article, you will be able to explain why a valid primary obligation is essential for a mortgage or security device to be enforceable, distinguish between types of secured obligations, and identify common MBE traps regarding the necessity and nature of the debt secured. You will be able to apply these principles to MBE-style questions and avoid common errors.

MBE Syllabus

For the MBE, you are required to understand the legal requirements for a valid mortgage or security device, with a focus on the primary obligation. This article covers:

  • The requirement that a mortgage or security device secures an enforceable obligation (debt or promise).
  • The types of obligations that may be secured (present, future, contingent).
  • The effect of the absence, invalidity, or discharge of the secured obligation.
  • The consequences for enforcement and foreclosure if the obligation is missing or defective.
  • The relationship between the note (or debt) and the security instrument.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

  1. Which of the following is required for a mortgage to be valid and enforceable?
    1. The mortgage must be in writing and signed by the mortgagor.
    2. The mortgage must secure an enforceable obligation.
    3. The mortgage must be recorded.
    4. The mortgage must be given to a bank.
  2. If a mortgage is executed to secure a debt that is later found to be void for illegality, what is the effect on the mortgage?
    1. The mortgage remains enforceable.
    2. The mortgage is void and unenforceable.
    3. The mortgage can be foreclosed but only for nominal damages.
    4. The mortgage automatically converts to a lien.
  3. Can a mortgage secure a future or contingent obligation?
    1. No, only present debts may be secured.
    2. Yes, if the parties intend and the obligation is described.
    3. Only if the future obligation is certain to arise.
    4. Only if the mortgage is recorded.

Introduction

A mortgage or security device is only as effective as the obligation it secures. For a mortgage, deed of trust, or other security instrument to be enforceable, there must be a valid, legally enforceable obligation—typically a debt or promise to pay. The nature and existence of this obligation is fundamental: without it, the security device cannot be foreclosed or enforced. This article explains the necessity and nature of the secured obligation, the types of obligations that may be secured, and the consequences if the obligation is missing, invalid, or discharged.

Key Term: Mortgage A security interest in real property given to secure the performance of an obligation, usually the repayment of a loan.

The Necessity of a Primary Obligation

A mortgage or security device is not an independent contract. It is an accessory to a primary obligation, most commonly a promissory note or other debt. The security instrument is intended to provide the creditor with recourse to specific property if the debtor defaults on the obligation.

Key Term: Primary Obligation The debt, promise, or other enforceable duty that a mortgage or security device is intended to secure.

If there is no valid obligation, the mortgage is a nullity. The creditor cannot foreclose or enforce the security device if the debt is void, has been paid in full, or never existed.

Types of Obligations That May Be Secured

A mortgage may secure:

  • A present, existing debt (e.g., a loan made at the time the mortgage is given).
  • A future advance (a loan to be made in the future, if the mortgage so provides).
  • A contingent obligation (e.g., a guaranty or suretyship, where the mortgagor promises to pay if another defaults).

The parties must clearly intend to secure the obligation, and the obligation must be described or otherwise identifiable in the security instrument.

Key Term: Future Advance A loan or extension of credit to be made after the execution of the mortgage, which the mortgage secures if so stated.

Effect of Invalid, Discharged, or Nonexistent Obligation

If the primary obligation is void (for example, due to illegality or lack of consideration), the mortgage is unenforceable. If the debt is paid in full, the mortgage is extinguished and cannot be foreclosed. If the obligation never existed, the mortgage is a nullity.

Key Term: Discharge of Obligation The satisfaction or extinguishment of the debt or duty secured by a mortgage, resulting in the release of the security interest.

Relationship Between the Note and the Security Instrument

The note (or other evidence of debt) and the mortgage are separate but related. The note is the borrower's personal promise to pay; the mortgage secures that promise with real property. If the note is unenforceable, the mortgage cannot be foreclosed. If the mortgage is defective but the note is valid, the creditor may sue on the note but cannot foreclose on the property.

Key Term: Note A written promise to pay a specified sum, usually secured by a mortgage or deed of trust.

Worked Example 1.1

A homeowner borrows $100,000 from a lender and signs a promissory note. The homeowner gives the lender a mortgage on her house to secure the loan. Later, the note is paid in full, but the mortgage is not released of record. Can the lender foreclose?

Answer: No. Once the primary obligation (the note) is paid in full, the mortgage is extinguished. The lender cannot foreclose, even if the mortgage remains of record.

Worked Example 1.2

A developer executes a mortgage to a bank to secure "all present and future advances." The bank later lends additional funds to the developer under the same agreement. Are the future advances secured?

Answer: Yes, if the mortgage expressly secures future advances, and the advances are made in accordance with the agreement, the mortgage secures both the original and future debts.

Exam Warning

On the MBE, beware of questions where the primary debt is void, illegal, or has been paid. If the obligation is invalid or discharged, the mortgage cannot be enforced, even if the security instrument appears valid.

Revision Tip

Always check the status and validity of the primary obligation before analyzing foreclosure or enforcement of a mortgage or security device.

Key Point Checklist

This article has covered the following key knowledge points:

  • A mortgage or security device is enforceable only if it secures a valid, enforceable obligation.
  • The obligation may be present, future, or contingent, if described and intended by the parties.
  • If the obligation is void, paid, or never existed, the mortgage is unenforceable.
  • The note and mortgage are separate; the note is the personal promise, the mortgage is the security.
  • Payment or discharge of the obligation extinguishes the mortgage.
  • On the MBE, always check for the existence and validity of the secured obligation.

Key Terms and Concepts

  • Mortgage
  • Primary Obligation
  • Future Advance
  • Discharge of Obligation
  • Note
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