What Is Mortgage;How Does It Works

A mortgage is a conveyance of land as security for a debt, and in most states it is accompanied by a note or bond as the evidence of the indebtedness. The mortgagor is the owner of the land and giver of the mortgage. The mortgagee is the person who loans the money and who takes the mortgage as security. Mortgages are one of the oldest forms of investment. Under English common law, a mortgage was an absolute conveyance and not merely security for a debt. Through this interpretation land was commonly for-feited at much less than its true value: the mortgagee was legally enti-tled to possession at any time.

Despite later rulings protecting debtors, the courts in England and in some of our states still view a mortgage as an absolute conveyance of land to which the mortgagee has legal title until the debtor has paid the entire debt. Connecticut, Maine, New Hampshire, North Carolina, Rhode Island. and Vermont still hold to this archaic theory in part. The majority of the states, however, accept the “lien theory”: The mortgage is merely a lien for the security of the debt. Many authorities believe the old common-law interpretation will eventually disappear from our jurisprudence.

Mortgage Loans.

A mortgage is given to secure a loan or a debt evidenced by a promissory note and mortgage: hence, the phrases “bond and mort-gage” and “note and mortgage.” The mortgage is not the written evi-dence of the debt; the debt is evidenced by the bond or the note. A mortgage may be a first mortgage, second mortgage, third mort-gage, and so on. Obviously, the first mortgage is the one which has a preferred lien against the property. Subsequent mortgages are subordi-nate and secondary in lien to a first mortgage.

Before the prudent lender will lend money on the strength of mort-gage security, he will have the property appraised by an expert and make a careful study of the physical condition and the marketability of the property. Then he will have the title carefully searched. Ordinarily the lender will investigate the financial status of the borrowers, too. He wants to know that the mortgaged property is good security for the debt, and that the mortgagor (the one who borrows the money) has the financial ability to pay the debt.

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