Sec. 360. Leases Of Property Held Under Contract Of Sale

If there are any outstanding leases, the contract should state that the sale is subject to same. Some conveyancers also insert a clause that the property is sold "subject to monthly tenancies" where that is the fact.

3 Forms 44, 45, Ch. XL infra.

If property is sold without such exceptions, the vendee may insist on possession of the property without any tenant thereon and may refuse title if the vendor is unable to deliver the property vacant.

Sec. 361. Price And Manner Of Payment

The total price to be paid for the property is usually first stated and then follows the manner in which payment thereof is to be made. Usually a fractional amount is paid upon signing the contract.

Usually the property is taken over subject to an outstanding mortgage, or, what amounts to the same thing, a "trust deed." The details of such a mortgage need not be stated, for it is held that the mortgage being of record, the purchaser is chargeable with knowledge or notice of its provisions. If the purchaser, however, wants any assurance, he may require that the details of the mortgage be given in the contract, in which case the contract statements would prevail.

The contract of sale in case of an outstanding mortgage, usually reads that the property is to be taken subject to a mortgage, but sometimes, without any reason therefor, there are added the words, "which mortgage the purchaser agrees to assume." The legal effect of this phrase seems not to be realized. It amounts to a guarantee on the purchaser's part of full payment of the mortgage. Thus if the mortgage is assumed by the purchaser, and the property is thereafter foreclosed and sold, and does not bring enough to pay the costs of the foreclosure and the amount due on the mortgage, the person "assuming" payment of the mortgage may be held personally for the deficiency. On the other hand, if he had taken the property merely "subject " to the mortgage, no resort could be had against him for a deficiency, as he personally assumes nothing, the mortgage being then supported entirely by the property and by any preceding guarantors.4

At times, the purchase price of property is paid in part by the purchaser giving back to the seller a mortgage for an agreed amount. Such a mortgage is called a "purchase money mortgage." Its details should always be stated in the contract of sale. If they are not, embarrassing situations may arise, not necessary to be set forth here.

In agreeing for a purchase money mortgage, in addition to the principal amount of the mortgage, the following details should be stated in the contract: - Maturity of the mortgage; rate of interest; when payable; the particular clauses, or otherwise that the mortgage is to contain "the usual clauses" in addition to any which are particularized. Also, the contract should specify who is to pay for drawing the mortgage, who bears the cost of recording it, and who is to pay any tax there may be thereon.

Where the total amount of the purchase price is to be paid in part in cash, in part by the purchaser taking over the property subject to an existing mortgage thereon, and the balance by the seller taking back a purchase money mortgage on the property, and the purchase money mortgage is consequently to be a second mortgage, - that is, subordinate in lien to the existing mortgage on the property, - the purchase money mortgage, although a second mortgage lien when made, would ascend to the position of a first mortgage if the existing first mortgage is later paid and satisfied. The result would be that the purchaser or any subsequent owner of the property could not obtain a new mortgage which would be prior in lien to the purchase money mortgage unless the then holder of the purchase money mortgage voluntarily or for a consideration consented. To avoid this situation, it is quite common in agreeing for a purchase money mortgage which is to remain a second mortgage lien, to insert a clause in the contract somewhat as follows: "Said mortgage is to contain a clause subordinating the same to any new first mortgage of $..........should the present first mortgage at any time be satisfied, and such clause shall further subordinate said mortgage to any new first mortgage in place of the present first mortgage, provided the excess of such new first mortgage above $ paid to the holder of this second mortgage on account of the principal sum, and that the holder of such second mortgage shall execute, acknowledge and deliver any instruments necessary or proper to effectuate such subordination as above agreed, provided he shall not be obliged to incur any expense in doing so (or, provided he shall be reimbursed for any expenses he may incur in doing so, to an amount not exceeding $........)."

* The above is a statement of the general rule. Frequently situations arise 'where the purchaser "assumes" the payment of the mortgage, but the courts will, notwithstanding, refuse to enforce the apparent liability. The legal principles applicable to the various situations must, however, be sought in the works on mortgages and cannot be detailed in a chapter intended to present only suggestions and very general principles.