Property law
Part of the common law series
Acquisition of property
Gift  · Adverse possession  · Deed
Lost, mislaid, or abandoned
Treasure trove
Alienation  · Bailment  · License
Estates in land
Allodial title  · Fee simple  · Fee tail
Life estate  · Defeasible estate
Future interest  · Concurrent estate
Leasehold estate  · Condominiums
Conveyancing of interests in land
Bona fide purchaser
Torrens title  · Strata title
Estoppel by deed  · Quitclaim deed
Mortgage  · Equitable conversion
Action to quiet title
Limiting control over future use
Restraint on alienation
Rule against perpetuities
Rule in Shelley's Case
Doctrine of worthier title
Nonpossessory interest in land
Easement  · Profit
Covenant running with the land
Equitable servitude
Related topics
Fixtures  · Waste  · Partition
Riparian water rights
Lateral and subjacent support
Assignment  · Nemo dat
Other areas of the common law
Contract law  · Tort law
Wills and trusts
Criminal Law  · Evidence

A mortgage is the pledging of a property to a lender as a security for a mortgage loan. Property law is the area of Law that governs the various forms of Ownership in Real property (land as distinct from personal or movable possessions Common law refers to law and the corresponding legal system developed through decisions of courts and similar tribunals rather than through legislative statutes or executive A gift, in the Law of Property, has a very specific meaning In order for a Gift to be legally effective the grantor must have intended to give the gift In Common law, adverse possession is the process by which title to another's Real property is acquired without compensation, by as the name A deed is a Legal instrument used to grant a Right. Deeds are part of the broader category of documents under seal. In the Common law of Property, personal belongings that have left the possession of their rightful owners without having directly entered the possession of another person are A treasure trove may broadly be defined as an amount of gold silver gemstones money jewellery or any valuable collection found hidden underground or in places such as cellars Alienation, in Property law, is the capacity for a piece of property or a property right to be sold or otherwise transferred from one party to another Bailment describes a legal relationship in Common law where physical possession of personal Property ( Chattels) is transferred from one person (the The verb license or grant license means to give permission The noun license is the document demonstrating that permission An estate is the Net worth of a person at any point in time It is the sum of a person's Assets - legal rights interests and entitlements to Property of Allodial title is a concept in some systems of property law It describes a situation where Real property ( Land, Buildings and Fixtures) is owned Fee simple is an estate in land in Common law. It is the most common way Real estate is owned in common law countries and is ordinarily the most Fee tail or entail is an obsolete term of art in Common law. It describes an estate of Inheritance in Real property which cannot A life estate is a concept used in Common law and Statutory law to designate the ownership of land for the duration of a person's life A defeasible estate is created when a grantor transfers land conditionally In Property law and Real estate, a future interest is a legal right to property ownership that does not include the right to present possession or enjoyment of A concurrent estate or co-tenancy is a concept in Property law, particularly derived from the Common law of Real property, which describes A condominium, or condo, is a form of Housing tenure and other Real property where a specified part of a piece of real estate (usually of an apartment In law conveyancing is the transfer of title of Property from one person to another or the granting of an Encumbrance such as a Mortgage or A bona fide purchaser ( BFP) referred to more completely as a bona fide purchaser for value without notice is a term used in the Law of Real property Torrens title is a system of land title where a register of land holdings maintained by the state guarantees an indefeasible title to those included in the register Strata title is a form of ownership devised for multi-level apartment blocks. Estoppel by Deed - A doctrine where rules of evidence prevent a litigant from denying the truth of what was said or done A quitclaim deed is a term used to describe a document by which a person (the "grantor" disclaims any interest the Grantor may have in a piece of Real property Equitable conversion is a doctrine of the Law of Real property under which a purchaser of real property becomes the equitable owner of title to the property at the An action to quiet title is a Lawsuit brought in a Court having Jurisdiction over land disputes in order to establish a party's title to Real property In Property law and Real estate, a future interest is a legal right to property ownership that does not include the right to present possession or enjoyment of A restraint on alienation, in the Law of Real property, is a clause used in the conveyance of real property that seeks to prohibit the recipient from selling The rule against perpetuities is a rule of law in effect under the property, Trusts, Estate, and Contract law of many Common law The Rule in Shelley's Case is a rule of law that may apply to certain Future interests in Real property and Trusts created in Common law jurisdictions In the Common law of England, the doctrine of worthier title was a legal doctrine that preferred taking title to Real estate by descent A nonpossessory interest in land is a term of the Law of Property to describe any of a category of rights held by one person to use land that is in the possession For railroad track easement see Track transition curve. An easement is the right or freedom to do something or the right to prevent Profit, but an entirely different meaning of the term analogous to an Easement. A covenant running with the land, is a Real covenant, in the Law of Real property. An equitable servitude is a term used in the Law of Real property to describe a Nonpossessory interest in land that operates much like a Covenant running In the law of real property fixtures are anything that would otherwise be a Chattel that have by reason of incorporation or affixation become permanently attached to Waste is a term used in the Law of Real property to describe a Cause of action that can be brought in Court to address a change in condition A partition is a term used in the Law of Real property to describe an act by a Court order or otherwise to divide up a Concurrent estate into Riparian Water rights (or simply riparian rights) is a system of allocating water among those who possess land about its source Lateral and subjacent support, in the Law of property, describes the right a landowner has to have that land physically supported in its natural state by both adjoining An assignment (Latin cessio) is a term used with similar meanings in the Law of Contracts and in the law of Real estate. Nemo dat quod non habet, literally meaning "no one give what one does not have" is a legal rule sometimes called the nemo dat rule that states that the purchase of A contract is an exchange of promises between two or more parties to do or refrain from doing an act which is enforceable in a court of law Tort law is the name given to a body of law that creates and provides remedies for civil wrongs that do not arise out of Contractual duties In Common law, a will or testament is a document by which a person (the Testator) regulates the rights of others over his or her Property The law of trusts and estates is generally considered the body of Law which governs the management of personal affairs and the Disposition of Property of The term criminal law, sometimes called penal law, refers to any of various bodies of rules in different Jurisdictions whose common characteristic is the potential The Law of evidence governs the use of Testimony (eg oral or written statements such as an Affidavit) and exhibits (e In the Common law, real property (or realty) refers to one of the two main classes of Property, the other class being Personal property ( A loan is a type of Debt. This article focuses exclusively on monetary loans although in practice any material object might be lent A mortgage loan is a Loan secured by Real property through the use of a Mortgage (a legal instrument 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. Security is the condition of being protected against danger loss and criminals In Finance, a Borrower is the party in a Loan agreement which receives money or other instrument from a Lender and promises to repay the lender in a specified

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. Old French was the Romance Dialect continuum spoken in territories which span roughly the northern half of modern France and parts of modern Belgium Foreclosure is the legal proceeding in which a mortgagee, or other Lienholder, usually a lender obtains a court ordered termination of a mortgagor ^[1]

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. Real estate is a legal term (in some jurisdictions notably in the USA, United Kingdom 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. A mortgage loan is a Loan secured by Real property through the use of a Mortgage (a legal instrument A commercial mortgage is a loan made using Real estate as collateral to secure repayment

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. An owner-occupier is a person who lives in a House that he or she owns Spain () or the Kingdom of Spain (Reino de España is a country located mostly in southwestern Europe on the Iberian Peninsula. The United Kingdom of Great Britain and Northern Ireland, commonly known as the United Kingdom, the UK or Britain,is a Sovereign state located For a topic outline on this subject see List of basic Australia topics. The United States of America —commonly referred to as the

Participants and variant terminology

Legal systems, while having some concepts in common, employ different terminology. However, in general, a mortgage of property involves the following parties.

Mortgage lender

Mortgagee is the legal term for the mortgage lender. The main function of the mortgage is to provide security to the lender. Given 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 precedence over other creditors. A creditor is a party (eg person organization company or government that has a claim to the services of a second party A mortgage accomplishes this security.

The lender loans the money and registers the mortgage against the title to the property. Title is a legal term for a bundle of rights in a piece of property in which a party may own either a legal interest or an equitable interest The rights The borrower gives the lender the mortgage as security for the loan, receives the funds, makes the required 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. If the mortgagor fails to repay the loan according to the conditions set forth by the lender, then the mortgagee reserves the right to foreclose on the property.

Borrower

Mortgagor is the legal term for the borrower, who owes the obligation secured by the mortgage, and may be multiple parties. Generally, the debtor must meet the conditions of the underlying loan or other obligation and the conditions of the mortgage. Otherwise, the debtor usually runs the risk of foreclosure of the mortgage by the creditor to recover the debt. Foreclosure is the legal proceeding in which a mortgagee, or other Lienholder, usually a lender obtains a court ordered termination of a mortgagor Typically the debtors will be the individual home-owners, landlords or businesses who are purchasing their property by way of a loan.

Most buyers of real property would have difficulty saving enough money to make an outright purchase of real estate. The use of debt increases a buyer's ability to buy through a combination of down payment and debt. Down payment (or downpayment is a term used in the context of the purchase of expensive items such as a Car and a House, whereby the payment is the initial upfront As a result a real estate transaction seldom occurs without borrowers relying on borrowed funds.

Borrowing for investment purposes

Aside from the absence of large amount of available money, there are several reasons why an investor (including a buyer of real estate) might borrow funds. See Investor AB for the Swedish investment company An investor is any party that makes an Investment. Some of these include:

• To diversify investments and reduce overall risk by using only part of the available funds for any one investment

• To invest the borrowed funds at a higher rate of interest (yield) than the borrowing rate; for example, a sum is borrowed at an annual interest rate of 7% and used to invest in a project that returns 10%

• To free up equity for other purposes; for example, a commercial enterprise may prefer to use funds to purchase inventory or equipment instead of investing only in land and buildings. Investment or investing is a term with several closely-related meanings in Business management, Finance and Economics, related to saving

• To obtain a tax benefit. In some countries (such as Canada), mortgage interest is not tax deductible, but loans made for investment purposes are.

Other participants

Because of the complicated legal exchange, or conveyance, of the property, one or both of the main participants are likely to require legal representation. In law conveyancing is the transfer of title of Property from one person to another or the granting of an Encumbrance such as a Mortgage or The terminology varies with legal jurisdiction; see lawyer, solicitor and conveyancer. A lawyer, according to Black's Law Dictionary, is "a person learned in the law as an attorney, Counsel or Solicitor; a person A "solicitor" is a term used in many Common law jurisdictions for a lawyer who offers legal services outside of the courts In Commonwealth countries a conveyancer is a specialist breed of Attorney that specializes in the Legal aspects of Buying and Selling

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. A mortgage broker acts as an intermediary who sells Mortgage loans on behalf of individuals or businesses A financial adviser is a professional who renders investment advice and Financial planning services to individuals and businesses

The debt is, in civil law jurisdictions, referred to as hypothecation, which may make use of the services of a hypothecary to assist in the hypothecation. Civil law or Romano-Germanic law or Continental law is the predominant system of law in the world. See also Hypothec. The original use of the word hypothecation was for a pledge of property as collateral for a Debt without

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. In the UK, this type of mortgage is no longer available, by virtue of the Land Registration Act 2002. The Land Registration Act 2002 is an Act of the Parliament of the United Kingdom which repealed and replaced previous legislation governing Land registration

Mortgage by legal charge

In a mortgage by legal charge or technically "a charge by deed expressed to be by way of legal mortgage",^[2] 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. A banker or bank is a Financial institution whose primary activity is to act as a payment agent for customers and to borrow and lend money Tax liens, in some cases, will come ahead of mortgages. A tax lien is a Lien imposed on property by law to secure payment of taxes 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. Foreclosure is the legal proceeding in which a mortgagee, or other Lienholder, usually a lender obtains a court ordered termination of a mortgagor

This type of mortgage is common in the United States and, since the Law of Property Act 1925,^[2] it has been the usual form of mortgage in England and Wales (it is now the only form — see above). The United States of America —commonly referred to as the The Law of Property Act 1925 is a functioning statute of the United Kingdom Parliament that deals mostly with the transfer of property by lease and deed History The Roman occupation of Britain was the first period in which the area of present-day England and Wales was administered as a single unit (with the exception

In Scotland, the mortgage by legal charge is also known as standard security. Scotland ( Gaelic: Alba) is a Country in northwest Europethat occupies the northern third of the island of Great Britain.

In Pakistan, the mortgage by legal charge is most common way used by banks to secure the financing. Pakistan () officially the Islamic Republic of Pakistan, is a country located in South Asia, Southwest Asia, Middle East and 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). A security interest is a property interest created by agreement or by operation of law over assets to secure the performance of an obligation (usually but not always the payment of a debt 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.

History

At common law, a mortgage was a conveyance of land that on its face was absolute and conveyed a fee simple estate, but which was in fact conditional, and would be of no effect if certain conditions were met — usually, but not necessarily, the repayment of a debt to the original landowner. Common law refers to law and the corresponding legal system developed through decisions of courts and similar tribunals rather than through legislative statutes or executive Fee simple is an estate in land in Common law. It is the most common way Real estate is owned in common law countries and is ordinarily the most An estate is the Net worth of a person at any point in time It is the sum of a person's Assets - legal rights interests and entitlements to Property of Hence the word "mortgage" (a legal term in French meaning "dead pledge"). The debt was absolute in form, and unlike a "live pledge" was not conditionally dependent on its repayment solely from raising and selling crops or livestock or simply giving the crops and livestock raised on the mortgaged land. The mortgage debt remained in effect whether or not the land could successfully produce enough income to repay the debt. In theory, a mortgage required no further steps to be taken by the creditor, such as acceptance of crops and livestock in repayment.

The difficulty with this arrangement was that the lender was absolute owner of the property and could sell it or refuse to reconvey it to the borrower, who was in a weak position. Increasingly the courts of equity began to protect the borrower's interests, so that a borrower came to have an absolute right to insist on reconveyance on redemption. Equity is the name given to the set of legal principles in jurisdictions following the English common law tradition which supplement strict rules of law where This right of the borrower is known as the "equity of redemption". The equity of redemption refers to the right of a mortgagor in Law to redeem his property once the liability secured by the Mortgage has been discharged

This arrangement, whereby the lender was in theory the absolute owner, but in practice had few of the practical rights of ownership, was seen in many jurisdictions as being awkwardly artificial. By statute the common law's position was altered so that the mortgagor would retain ownership, but the mortgagee's rights, such as foreclosure, the power of sale, and the right to take possession, would be protected. Foreclosure is the legal proceeding in which a mortgagee, or other Lienholder, usually a lender obtains a court ordered termination of a mortgagor

In the United States, those states that have reformed the nature of mortgages in this way are known as lien states. In Law, a lien is a form of Security interest granted over an item of Property to secure the payment of a Debt or performance of some other A similar effect was achieved in England and Wales by the Law of Property Act 1925, which abolished mortgages by the conveyance of a fee simple.

Foreclosure and non-recourse lending

In most jurisdictions, a lender may foreclose on the mortgaged property if certain conditions — principally, non-payment of the mortgage loan — apply. Foreclosure is the legal proceeding in which a mortgagee, or other Lienholder, usually a lender obtains a court ordered termination of a mortgagor Subject to local legal requirements, the property may then be sold. Any amounts received from the sale (net of costs) are applied to the original debt.

In some jurisdictions, mortgage loans are non-recourse loans: if the funds recouped from sale of the mortgaged property are insufficient to cover the outstanding debt, the lender may not have recourse to the borrower after foreclosure. A nonrecourse debt or non-recourse debt or nonrecourse loan is a Secured loan (debt that is secured by a pledge of collateral, typically In other jurisdictions, the borrower remains responsible for any remaining debt, through a deficiency judgment. A deficiency judgment is a judgment Lien against a Debtor, Defendant or Borrower whose Foreclosure sale did not produce sufficient

Specific procedures for foreclosure and sale of the mortgaged property almost always apply, and may be tightly regulated by the relevant government. In some jurisdictions, foreclosure and sale can occur quite rapidly, while in others, foreclosure may take many months or even years. In many countries, the ability of lenders to foreclose is extremely limited, and mortgage market development has been notably slower.

In 2008, 5. 6% of all mortgages in the United States were delinquent. A delinquent is one who fails to do that which is required by Law or by Duty when such failure is minor in nature ^[3]

Mortgages in the United States

Types of mortgage instruments

Two types of mortgage instruments are commonly used in the United States: the mortgage (sometimes called a mortgage deed) and the deed of trust. ^[4]

The mortgage

In all but a few states, a mortgage creates a lien on the title to the mortgaged property. In Law, a lien is a form of Security interest granted over an item of Property to secure the payment of a Debt or performance of some other Foreclosure of that lien almost always requires a judicial proceeding declaring the debt to be due and in default and ordering a sale of the property to pay the debt. Foreclosure is the legal proceeding in which a mortgagee, or other Lienholder, usually a lender obtains a court ordered termination of a mortgagor

The deed of trust

The deed of trust is a deed by the borrower to a trustee for the purposes of securing a debt. In most states, it also merely creates a lien on the title and not a title transfer, regardless of its terms. It differs from a mortgage in that, in many states, it can be foreclosed by a non-judicial sale held by the trustee. Foreclosure is the legal proceeding in which a mortgagee, or other Lienholder, usually a lender obtains a court ordered termination of a mortgagor ^[5] It is also possible to foreclose them through a judicial proceeding.

Most "mortgages" in California are actually deeds of trust. ^[6] The effective difference is that the foreclosure process can be much faster for a deed of trust than for a mortgage, on the order of 3 months rather than a year. Because the foreclosure does not require actions by the court the transaction costs can be quite a bit less.

Deeds of trust to secure repayments of debts should not be confused with trust instruments that are sometimes called deeds of trust but that are used to create trusts for other purposes, such as estate planning. A trust instrument (also sometimes called a deed of trust, where executed by way of Deed) is an instrument in writing executed by a Settlor used to constitute Though there are superficial similarities in the form, many states hold deeds of trust to secure repayment of debts do not create true trust arrangements.

Mortgage lien priority

Except in those few states in the United States that adhere to the title theory of mortgages,^[7] either a mortgage or a deed of trust will create a mortgage lien upon the title to the real property being mortgaged. In Law, a lien is a form of Security interest granted over an item of Property to secure the payment of a Debt or performance of some other The lien is said to "attach" to the title when the mortgage is signed by the mortgagor and delivered to the mortgagee and the mortgagor receives the funds whose repayment the mortgage secures. Subject to the requirements of the recording laws of the state in which the land is located, this attachment establishes the priority of the mortgage lien with respect to most other liens^[8] on the property's title. The vast majority of states in the United States employ a system of recording instruments that affect the title of Real estate as the exclusive means for publicly ^[9] Liens that have attached to the title before the mortgage lien are said to be senior to, or prior to, the mortgage lien. Those attaching afterward are said to be junior or subordinate. ^[10] The purpose of this priority is to establish the order in which lien holders are entitled to foreclose their liens in an attempt to recover their debts. Foreclosure is the legal proceeding in which a mortgagee, or other Lienholder, usually a lender obtains a court ordered termination of a mortgagor If there are multiple mortgage liens on the title to a property and the loan secured by a first mortgage is paid off, the second mortgage lien will move up in priority and become the new first mortgage lien on the title. Documenting this new priority arrangement will require the release of the mortgage securing the paid off loan.

See also

• Trust deed
• Bridge financing
• Financing
• Fixed rate mortgage
• Promissory note
• Loan origination
• Subprime lending
• Mortgage calculator
• Refinancing
• Foreign currency mortgage
• Americans for Fairness in Lending
• National Mortgage News

Notes and references