UNIT 10

MORTGAGE
A MORTGAGE is a non-possessory form of real security, which involves the
transfer of ownership of an asset to a creditor (the mortgagee) by way of
security upon condition that the asset will be transffered back to the debtor
(mortgagor) when the sum secured is paid.
MORTGAGOR = a lender who lends money to a property owner (the
mortgagee) in returns for the grant by the mortgagee of a mortgage over the
property as security for the loan.
MORTAGEE = the property owner to whom money is loaned by the mortgagor
in return for the grant of a mortgage over the propery.
The Mortgagor may retain possession of the mortgaged property, an advantge
where the mortgaged property must be used by the ortgagor in its business.
The ortgagor has the right to recover ownership of the mortgaged property,
known as !the e"uity of redemption#, on payment of the debt secured by the
mortgage.
A $%T&A&' involves the transfer of an interest in land as security for a loan
or other obligation. (t is the most commom method of financing real estate
transactions. The ortgagor is the party transferring the interest in land. The
ortgagee, usually a financial institution, is the provider of the loan or other
interest given in e)change for the security interest.
Lender
ortgagee is a party to whom property is mortgaged, usually a lender. ortgage
provides security to the lender. &iven the large sum of money involved in
financing a property, a mortgage lender will usually want security for the loan
that will provide a claim upon that security and will take precendence over other
creditors. A mortgage accomplishes this security.
The lender loans the money and registers the mortgage with the title to the
property. The borrower gives the lender the mortgage as security for the loan,
receives funds, makes the re"uired payments and maintains possession of the
property. The borrower has the right to have the mortgage discharged from the
title once the debt is paid. (f the ortgagor fails to repay the loan according to
the conditions set forth by the lender, then the ortgagee reserves the right to
foreclose on the property.
Borrower
ortgagor is a party who mortgages property. A ortgagor owes the obligation
secured by the mortgage. &enerally, the debtor must meet the conditions of the
underlying loan or other obligation and the conditions of the mortgage. $therwise,
the debtor usually runs the risk of foreclosure of the mortgage by the creditor to
recover the debt. The debtors will be the individual hpme-owners, landlords or
businss people who are purchasing their property by way of a loan.
*ormally, a mortgage is paid in installments that include both interest and a
payment on the principle amount that was borrowed. +ailure to make payments
results in the foreclosure of the mortgage. +oreclosure allows the mortgagee to
declare that the entire mortgage debt is due and must be paid immediately.
+ailure to pay the mortgage debt leads to sei,ure of the security interest and it-s
sale to pay for any remaining mortgage debt.
Any property can be mortgaged, including real and personal, tangible and
intangible, present and future propety. This gives a mortgage an advantage over
a pledge which cannot be granted over intangible or future property. ortgages
are of several kinds as they concern the kind of the mortgaged property. m. of
lands, tenements, hereditaments, m. of goods and chattels.
A mortgage can be either legal or e"uitable. A legal mortgage involves the
transfer by way of security of legal ownership of the property. An e"utable
mortgage is created where.
a)the mortgagor transfers the e"uitable ownership /confers an e"uitable interst in
his property0
b)the mortgage is of e"utable property0 this includes a mortgage of future
property to be a"uired by the mortgagor, such as a mortgage of future book
debts0
c)the parties enter into a contract to create a mortgage, including where they fail
to comply with the necessary formalities for creation of a legal mortgage.
The manner of transfer depends on the type of the property being transferred. (t
is generally be advisable for the mortgage to be in wrtiting. *o formality is
re"uired for the transfer of goods.
(n the case of intangible property, transfer is usually by assignment in writing.
A mortagge of an e"uitable interest in property must be in writing.
Enforcement
The law of mortgages is mainly governed by common law.
A mortgage has four rights as means of enforcing the mortgage.
a) a right of foreclosure which terminates the mortgagor-s right of redemption0
b) a right to take possession of the mortgaged property0 where the mortgage is
a security bill of sale, the mortgagee has a special stautory right of sei,ure0
c) an implied power of sale0
d) the right to apply to the court for an order for sale or the appointment of
a receiver.
The mortgagor-s e"uity of redemption prevents the mortagge claiming outright
ownership and compels him to allow the mortgagor to redeem the mortgaged
property by tender of the amount due, plus interest, even after the agreed time
for redemption is passed. the mortgagor-s e"uity of redemption is e)tinguished
by foreclosure and sale.
The +oreclosure process depends on state law and the terms of the mortgage.
The most common processes are court proceedings (1udicial foreclosure) or
grants of power to the ortgagee to sell the property (power of sale
foreclosure). The effect of foreclosure is to end the mortgagor-s e"uity of
redemption, leaving the mortgage outright owner of the property. The debt
secured by the mortgage is e)tinguished. the mortgage is deemed to have taken
the property in satisfaction of the debta. any states regulate acceleration
clauses and allow late payments to avoid foreclosure.
2ower of sale. The mortgagee has a power of sale where.
-the mortgage is created by deed (3aw of 2roperty Act 4567) 8 applies to
mortgages of any property other than goods0
-it is e)pressly or impliedly included in the contract of mortgage 8 a well drafted
mortgage must include an e)pres power of sale0 in the absence of an e)press
power, a right of sale may be implied0
-the mortgage is a security bill of sale under the 9ill of :ale Act 8 in such cases
the mortgage has a power of sale sub1ect to restrictions imposed by the
legislation.
2;+ to <ord