Important Information About Mortgage
A mortgage is the pledging of a property to a lender as a security for a mortgage loan. While a mortgage in itself is not a debt, it is evidence of 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 of the real estate 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.
The term comes from the Old French "dead pledge," apparently meaning that the pledge ends (dies) either when the obligation is fulfilled or the property is taken through foreclosure.
In most jurisdictions mortgages are strongly associated with loans secured on real estate rather than other property (such as ships) and in some jurisdictions only land may be mortgaged. Arranging a mortgage is seen as the standard method by which individuals and businesses can purchase residential and commercial real estate without the need to pay the full value immediately. See mortgage loan for residential mortgage lending, and commercial mortgage for lending against commercial property. The measurement of a mortgage with regards to cost to the borrower can be measured by Annual Percentage Rate (APR) or many other formulas for true cost such as Lender Police Effective Annual Rate (LPEAR).
In many countries it is normal for home purchases to be funded by a mortgage. In countries where the demand for home ownership is highest, strong domestic markets have developed, notably in Spain, the United Kingdom, the Commonwealth of Australia and the United States.
Default on Subdivided Property
When a tract of land is purchased with a mortgage and then split up and sold off, then the "inverse order of alienation rule" applies to find out who will be liable for the default.
Basically, when a mortgaged tract of land is split up and sold off, then upon default, the mortgagee forecloses and proceeds against lands still owned by the mortgagor, then liability attaches in a backward fashion, or in an 'inverse order' as they were sold. So if A acquires a 3-acre (12,000 m2) lot by mortgage then splits up the lot into 3 acre lots (A, B, and C), and sells lot B to X, and then lot C to Y, retaining lot A for himself then, upon default, the mortgagee will go after lot A, the mortgagor, and if that sale does not satisfy the default, then the owner of lot C will be liable, then the owner of lot B. The idea is that the first purchaser should have more equity and subsequent purchasers receive a diluted share.
Legal aspects
Mortgages may be legal or equitable. Furthermore, a mortgage may take one of a number of different legal structures, the availability of which will depend on the jurisdiction 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.
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 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.
Mortgages by demise were the original form of mortgage, and continue to be used in many jurisdictions, particularly in the United States. Many other common law jurisdictions have either abolished or minimised the use of the mortgage by demise. For example, in England and Wales this type of mortgage is no longer available, by virtue of the Land Registration Act 2002.
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 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 the United States and, since the Law of Property Act 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.
In Pakistan, the mortgage by legal charge is most common way used by banks to secure the financing.[citation needed] 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. Equitable mortgage
See also: Security interest#Types of security
In an equitable mortgage the lender is secured by taking possession of all the original title documents of the property and by borrower's signing a Memorandum of Deposit of Title Deed (MODTD). This document is an undertaking by the borrower that he/she has deposited the title documents with the bank with his own wish and will, in order to secure the financing obtained from the bank .
