|
A mortgage is a method of using property 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.
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.
| 
