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A mortgage is the transfer of an interest in property to a lender as a security for a debt - usually a loan of money. While a mortgage in itself is not a debt, it is the lender's security for a debt. It is a transfer of an interest in land from the owner to the mortgage lender, on the condition that this interest will be returned to the owner when the terms of the mortgage have been satisfied or performed. In other words, the mortgage is a security for the loan that the lender makes to the borrower.
This comes from the Old French "dead pledge," apparently meaning that the pledge ends (dies) either when the debt is satisfied or the property is taken through foreclosure.
In most jurisdictions mortgages are strongly associated with loans secured on real estate rather than on other property (such as ships) and in some jurisdictions only land may be mortgaged. A mortgage is the standard method by which individuals and businesses can purchase real estate without the need to pay the full value immediately from their own resources. See mortgage loan for residential mortgage lending, and commercial mortgage for lending against commercial property. In the cheetah finance mortgage section you will find about many things such as mortgage loan, refinance mortgage, home mortgage, mortgage rates, refinancing mortage and the best thing is that you can calculate your mortgage here at our mortgage calculator.
Participants and variant terminology
Legal systems in different countries, while having some concepts in common, employ different terminology. However, in general, a mortgage of property involves the following parties.
Mortgage lender
A mortgage lender is an investor that lends money secured by a mortgage on real estate. Typically, the purpose of the loan is for the borrower to buy that similar real estate. The borrower, known as the mortgagor, gives the mortgage to the lender, known as the mortgagee. As the mortgagee, the lender has the right to sell the property to pay off the loan if the borrower fails to pay.
The mortgage runs with the land, so even if the borrower transfers the property to someone else, the mortgagee still has the right to sell it if the borrower fails to pay off the loan.
So that a buyer cannot without knowing buy property subject to a mortgage, mortgages are registered or recorded against the title with a government office, as a public record. The borrower has the right to have the mortgage discharged from the title once the debt is paid. Borrower
A mortgagor is the borrower in a mortgage—they owe the duty secured by the mortgage. In general, the debtor must meet the conditions of the Underlying loan or other obligation and the conditions of the mortgage. Otherwise, the debtor usually runs the risk of foreclosure of the mortgage by the creditor to recover the debt. Typically the debtors will be the individual home-owners, landlords or businesses who are purchasing their property by way of a loan. Other participants
Because of the problematical legal exchange, or conveyance, of the property, one or both of the main participants are likely to require legal representation. The terminology varies with legal command.
Because of the complex nature of many markets the debtor may approach a mortgage broker or financial adviser to help him or her source an appropriate creditor, typically by finding the most competitive loan. mortgagee proceeds against lot A first, the mortgagor. If foreclosure or reclamation of lot A does not completely satisfy the debt, the mortgagee proceeds against lot B, then lot C. The rationale is that the first buyer should have more equity and resultant purchasers receive a diluted share. |
Default on divided property
When a tract of land is purchased with a mortgage and then split up and sold, the "inverse order of alienation rule" applies to decide parties liable for the unpaid debt.
When a mortgaged tract of land is divide up and sold, upon default, the mortgagee first forecloses on lands still owned by the mortgagor and proceeds against other owners in an 'inverse order' in which they were sold. For example, A acquires a 3-acre (12,000 m2) lot by mortgage then splits up the lot into three 1-acre (4,000 m2) lots (A, B, and C), and sells lot B to X, and then lot C to Y, retaining lot A for himself. Upon default, the mortgagee proceeds against lot A first, the mortgagor. If foreclosure or reclamation of lot A does not completely satisfy the debt, the mortgagee proceeds against lot B, then lot C. The rationale is that the first buyer should have more equity and resultant purchasers receive a diluted share. Legal aspects
Mortgages might be legal or equitable mortgage. Furthermore, a mortgage may take one of a number of different legal structures, the availability of which will depend on the authority under which the mortgage is made. Common law jurisdictions have evolved two main forms of mortgage: the mortgage by demise and the mortgage by legal charge.
Since the seventeenth century, lenders have not been allowed to hold interest in the property beyond the underlying debt under the equity of deliverance principle. Attempts by the lender to carry an equity interest in the property in a manner similar to changeable bonds through contract have been therefore struck down by courts as "clogs", but developments in the 1980s and 1990s have led to less rigid enforcement of this principle, mostly due to interest among theorists in returning to a freedom of contract regime. Mortgage by demise
In a mortgage by demise, the mortgagee (the lender) becomes the owner of the mortgaged property until the loan is repaid or other mortgage obligation fulfilled in full, a process known as "redemption". This kind of mortgage takes the form of a conveyance of the property to the creditor, with a condition that the property will be returned on redemption.
Mortgage by legal charge
In a mortgage by legal charge or technically "a charge by deed expressed to be by way of legal mortgage", the debtor remains the legal owner of the property, but the creditor gains sufficient rights over it to enable them to enforce their security, such as a right to take possession of the property or sell it.
To protect the lender, a mortgage by legal charge is usually recorded in a public register. Since mortgage debt is often the biggest debt owed by the debtor, banks and other mortgage lenders run name searches of the real estate property to make certain that there are no mortgages already registered on the debtor's property which might have superior priority. Tax liens, in some cases, will come ahead of mortgages. For this reason, if a borrower has delinquent property taxes, the bank will often pay them to prevent the lienholder from foreclosing and wiping out the mortgage.
This type of mortgage is most common in the United States and, since the Law of Property Act it has been the usual form of mortgage in England and Wales .
In Scotland, the mortgage by legal charge is also known as Standard Security.
In Pakistan, the mortgage by legal charge is most common way used by banks to secure the financing. It is also known as registered mortgage. After registration of legal charge, the bank's lien is recorded in the land register stating that the property is under mortgage and cannot be sold without obtaining an NOC (No Objection Certificate) from the bank. |
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