| A mortgage is an interest in land created by a | | | | The mortgagor confirms and guarantees that he is the |
| contract, not a loan. Although almost all mortgage | | | | owner in fee simple and holds all rights and powers |
| agreements contain a promise to repay a debt, a | | | | that such ownership entails, including the right to |
| mortgage is not a debt by and in itself. It can be better | | | | convey the land to the mortgagee. |
| characterized as evidence of a debt. More importantly, | | | | [ ] Free and Clear |
| a mortgage is a transfer of a legal or equitable interest | | | | This is the very essence of the security for the debt: |
| in land, on the condition sine qua non that the interest | | | | the title must be free and clear of all encumbrances |
| will be returned when the terms of the mortgage | | | | (subject to certain statutory rights, such as taxation), |
| contract are performed. A mortgage agreement | | | | so that conveyance can take place. Upon |
| usually transfers the interest in the borrower's land to | | | | conveyance, the interest is transferred to the lender |
| the lender. However, the transfer has a condition | | | | while the borrower retains possession. But on default, |
| attached: if the borrower performs the obligations of | | | | the borrower will deliver also possession to the lender |
| the mortgage contract, the transfer becomes void. | | | | subject to any encumbrance in priority. This can be a |
| This is the reason why the borrower is allowed to | | | | tax lien or, in the case of default on a second |
| remain on title as the registered owner. In practicality, | | | | mortgage, a first mortgage. |
| he retains possession of the land but the lender holds | | | | [ ] Further Assurances |
| the right to the interest in said land. | | | | In the event of default, the mortgagor promises to do |
| In essence, therefore, a mortgage is a conveyance of | | | | all that is necessary to allow the lender to obtain title of |
| land as a security for payment of the underlying debt | | | | the property. |
| or the discharge of some other obligation for which it is | | | | [ ] Prior Encumbrances |
| given. In a mortgage contract, the borrower is called | | | | Except for statutory encumbrances, the mortgagor |
| 'mortgagor' and the lender 'mortgagee'. | | | | must make a declaration of any and all charges that |
| The History of Mortgage Law | | | | have priority over the mortgage being contracted, |
| Mortgage Law originated in the English feudal system | | | | otherwise the lender expects and has the right to be |
| as early as the 12th century. At that time the effect of | | | | registered in first priority. |
| a mortgage was to legally convey both the title of the | | | | [ ] Insurance |
| interest in land and possession of the land to the | | | | The mortgage covenants to either keep the buildings |
| lender. This conveyance was 'absolute', that is subject | | | | located on said land insured at all times or, in the |
| only to the lender's promise to re-convey the property | | | | alternative, to provide a cash bond covering the |
| to the borrower if the specified sum was repaid by | | | | replacement cost of said buildings. |
| the specified date | | | | [ ] Release of all Claims |
| If, on the other hand, the borrower failed to comply | | | | The borrower gives up any claims he may have |
| with the terms, then the interest in land automatically | | | | against the lender with respect to the property, except |
| became the lender's and the borrower had no further | | | | the borrower's right to demand reconveyance when |
| claims or recourses at law. There were, back in feudal | | | | the underlying debt is repaid. |
| England, basically two kinds of mortgages: 'ad vivum | | | | [ ] Acceleration on Default |
| vadium', Latin for 'a live pledge' in which the income | | | | Acceleration is a proviso stipulating the on default the |
| from the land was used by the borrower to repay the | | | | principal and interest of the underlying debt will both |
| debt, and 'ad mortuum vadium', Latin for 'a dead | | | | become due and payable forthwith at the option of |
| pledge' where the lender was entitled to the income | | | | the mortgagee. |
| from the land and the borrower had to raise funds | | | | [ ] Quiet Possession |
| elsewhere to repay the debt. Whereas at the | | | | A stipulation that, until default, the mortgagor shall have |
| beginning only 'live pledges' were legal and 'dead | | | | quiet possession of said lands. |
| pledges' were considered an infringement of the laws | | | | [ ] Omnibus Clause |
| of usury and of religious teachings, by the 14th century | | | | In default of any payment of money to be paid by the |
| only dead pledges remained and were all very legal | | | | mortgagor under the terms of the mortgage contract, |
| and very religious. And, apparently, they are still very | | | | the mortgagee may pay the same and the amount so |
| religious in the 21st century. | | | | paid shall be added forthwith to the principal debt |
| Express Contractual Terms of a Mortgage | | | | secured by the contract and carrying interest at the |
| Following is an analysis of the clauses contained in | | | | same rate stipulated by the contract. |
| most mortgage contracts. It should be emphasized, | | | | [ ] Repairs |
| however, that the wording varies from contract to | | | | The mortgagor has a duty and an obligation to keep |
| contract, and that the types of clauses change to | | | | the lands and the buildings thereon in good conditions |
| conform to the particular types of securities | | | | and in a reasonable state of repair and, furthermore, |
| mortgaged. | | | | he will not abandon or commit waste anywhere on the |
| [ ] Redemption | | | | mortgaged property. This clause is intended to |
| When the mortgagor fulfills his obligations under the | | | | safeguard the value of the lender's security. |
| contract, the mortgage will be void and the mortgagee | | | | [ ] Advances |
| will be bound to reconvey the legal interest to the | | | | The mortgagee shall not be bound to advance any |
| mortgagor. | | | | part of the money intended to be secured by the |
| [ ] Transferability | | | | mortgage contract. For example, where part of the |
| All the covenants made by the mortgagor will be | | | | money has been advanced and subsequently a |
| binding upon him, his heirs, executors and | | | | builder's lien is filed against the land, the lender will |
| administrators. This is the case whether the legal | | | | require the lien to be removed before advancing |
| interest his held by the mortgagee, or by the | | | | further funds. Note that builder's liens have priority over |
| mortgagee's heirs, executors, administrators or | | | | mortgages. |
| assignees. | | | | [ ] Sale Clause |
| [ ] Personal Covenant | | | | Also known as 'Due on Sale' the mortgagor agrees to |
| The contractual promise made by the borrower is his | | | | pay, at the option of the mortgagee, all principal and |
| personal covenant. Because of this, it does not run | | | | interest of the underlying debt upon sale of the |
| with the land, so that the lender can sue the borrower | | | | property. This clause effectively prevents the |
| on his personal covenant even in the eventuality that | | | | mortgage from being assumed by anyone |
| the borrower has sold the interest in land to someone | | | | unacceptable to the lender. Obviously, the other option |
| else who has assumed the mortgage. In practicality, | | | | of the lender is not to call the loan if the mortgagor |
| this means that until the original mortgage contract is | | | | sells to a Buyer acceptable to the lender. In the |
| valid, in full force and effect the original mortgagor is | | | | absence of this clause, the mortgage is always |
| always liable. | | | | assumable. |
| [ ] Title Integrity | | | | |