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Mortgage
Property
law
A mortgage
is a method of using property (real or personal) as security for the payment of
a debt.
The term
mortgage (from Law French, lit. dead pledge) refers to the legal device used in
securing the property, but it is also commonly used to refer to the debt secured
by the mortgage.
In most
jurisdictions mortgages are strongly associated with loans secured on real
estate rather than other property (such as ships) and in some cases only land
may be mortgaged. Arranging a mortgage is seen as the standard method by which
individuals or businesses can purchase residential or commercial real estate
without the need to pay the full value immediately.
In many
countries it is normal for home purchase to be funded by a mortgage. In
countries where the demand for home ownership is highest, strong domestic
markets have developed, notably in Great Britain, Spain and the United States.
Participants
and variant terminology
Each legal
system tends to share certain concepts but vary in the terminology and jargon
they use.
In general
terms the main participants in a mortgage are:
Creditor
The creditor
has legal rights to the debt secured by the mortgage and often make a loan to
the debtor of the purchase money for the property. Typically, creditors are
banks, insurers or other financial institutions who make loans available for the
purpose of real estate purchase.
A creditor
is sometimes referred to as the mortgagee or lender.
Debtor
The debtor or
debtors must meet the requirements of the mortgage conditions (and often the
loan conditions) imposed by the creditor in order to avoid the creditor enacting
provisions of the mortgage 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.
A debtor is
sometimes referred to as the mortgagor, borrower, or obligor
Other
participants
Due to the
complicated 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 jurisdiction; see lawyer, solicitor and conveyancer.
Because of
the complex nature of many markets the debtor may approach a mortgage broker or
financial adviser to help them source an appropriate creditor typically by
finding the most competitive loan.
The debt is
sometimes referred to as the hypothecation, which may make use of the services
of a hypothecary to assist in the hypothecation.
Legal Aspects
There are
essentially two types of legal mortgage.
Mortgage by
demise
In a mortgage
by demise, the creditor becomes the owner of the mortgaged property until the
loan is repaid in full (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.
This is an
older form of legal mortgage and is less common than a mortgage by legal charge.
It is no longer available in the UK, by virtue of the Land Registration Act
2002.
Mortgage by
legal charge
In a mortgage
by legal charge, 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 largest debt owed by the debtor, banks and
other mortgage lenders run title searches of the real property to make certain
that there are no mortgages already registered on the debtor's property which
might have higher 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 common in U.S. and, since 1925, it has been the usual form of
mortgage in England and Wales (it is now the only form - see above).
In Scotland,
the mortgage by legal charge is also known as standard security.
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