Mortgage

A mortgage (literal translation: "death pledge") is a device developed in the common law world, whereby the ownership of property is passed from one person -- the mortgagor -- to another -- the mortgagee -- in return for the loan of money. The mortgagee is prevented from exercising his rights of ownership by the rules of equity so long as the interest on the loan is paid.

Operation of the mortgage

The borrower (also called the mortgagor) uses a mortgage to pledge real property to the lender (also called the mortgagee) as security against the debt (also called hypothecation) for the rest of the value of the property. In legal terms, the creation of a mortgage gives the legal title of the land to the mortgagee and an equitable title (called "equity of redemption") to the mortgagor. The legal title, however, only exists as a security for a debt and does not convey any title or powers associated with real property.

Related Topics:
Real property - Lender - Debt - Hypothecation

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The mortgage instrument contains two parts:

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• the mortgage, which is the pledge
• the promissory note (or simply note) which is the actual evidence of the debt and promise to repay

To protect the lender, a mortgage is recorded in the public records creating a lien (when there are multiple liens, order of recording determines priority). 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 the lien of the mortgage is prior to anyone else's claim. 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.

Related Topics:
Bank - Lien - Foreclosing

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