Restatement (Third) of Property: Mortgages

Editorial note. The classical American mortgage combined common-law title-theory formalities with equitable protections developed by the Court of Chancery, especially the equity of redemption. Nineteenth-century American courts and legislatures superimposed statutory-redemption schemes, judicial foreclosure procedures, and, in some jurisdictions, anti-deficiency statutes. The Third Restatement, drafted from 1985 to 1996 under Reporter Grant S. Nelson, synthesizes these developments into a coherent lien-theory framework.

Editorial note. To restate the modern American law of mortgages, to identify and reconcile jurisdictional divergences (particularly between lien-theory and title-theory States), and to provide a workable framework for lenders, borrowers, courts, and legislatures.

Editorial note. Creation and transfer of mortgages; priorities; the equity of redemption; foreclosure by judicial action, power of sale, and strict foreclosure; subrogation and marshaling; deficiency judgments; junior interests; wraparound and future-advance mortgages.

Editorial note. Chapter 1 (Nature of Mortgages); Chapter 2 (Creation, Coverage, and Transfer); Chapter 3 (Priorities); Chapter 4 (Rights and Duties Prior to Foreclosure); Chapter 5 (Redemption and Foreclosure); Chapter 6 (Deficiency Judgments); Chapter 7 (Special Mortgage Transactions).

Editorial note. Black-letter rules with Comments, Illustrations, and Reporter's Notes. Sections adopt the lien theory of the mortgage (§ 4.1) and reject the classical title-theory conception on which several American jurisdictions continue nominally to rely.

Editorial note. Modernizes the mortgage-related provisions of the Restatement (First) of Property. Coordinated with the Restatement (Third) of Property (Servitudes, 2000) on the interaction of servitudes and encumbrances, and with the Restatement (Third) of Property (Wills and Other Donative Transfers, 1999–2011) on encumbered gifts and inheritances.

Editorial note. The Third Restatement's adoption of the lien theory, its articulation of equitable subrogation (§ 7.6) and marshaling (§ 8.6), and its treatment of the mortgagor's equity of redemption (§ 3.1) constitute the leading modern synthesis of American mortgage doctrine.

Editorial note. Numerous state courts have adopted specific Restatement sections—especially the equitable-subrogation rule of § 7.6—as their common-law rule. Federal courts sitting in diversity routinely apply Restatement formulations in the absence of state authority on point.

Editorial note. Sections 4.1 (lien theory), 6.4 (deficiency), 7.6 (equitable subrogation), 8.1 (foreclosure), and 8.3 (power-of-sale foreclosure) are among the most frequently cited.

Editorial note. Persuasive secondary authority. Where state statutes or precedent control (statutory redemption, anti-deficiency legislation, judicial-foreclosure procedure), the Restatement yields.

Editorial note. See Uniform Commercial Code Article 9 (secured transactions in personal property and fixtures); Statute of Frauds, 29 Car. 2, c. 3 (1677) (writing requirement for interests in land); Restatement (Third) of Property (Servitudes, 2000).

Editorial note. Real-estate finance practitioners rely on the Restatement for priorities, subrogation, marshaling, and foreclosure analysis. It is the modern reference for jurisdictions whose common-law mortgage doctrine has not been comprehensively codified.