A mortgage is an interest in land created by contract, not a loan.. Although almost all mortgage agreements contain a promise to pay a debt, a mortgage is not a debt in itself. It can best be characterized as evidence of a debt. More importantly, a mortgage is a transfer of a legal or equitable interest in land, on condition condition sine qua non that interest will be returned when the terms of the mortgage contract are met. A mortgage agreement usually transfers the interest in the land from the borrower to the lender. However, the transfer has an attached condition: if the borrower complies with the obligations of the mortgage contract, the transfer is null and void. This is why the borrower is allowed to remain on the title as the owner of record. In practice, he retains possession of the land but the lender has the right to interest in the land.

In essence, therefore, a mortgage is a transfer of land as security for the payment of the underlying debt or the fulfillment of some other obligation for which it was granted. In a mortgage agreement, the borrower is called the ‘mortgagor’ and the lender is called the ‘mortgagor’.

The history of mortgage law

Mortgage Law originated in the English feudal system as early as the 12th century. At the time, the effect of a mortgage was to legally convey both title to the interest in the land and possession of the land to the lender. This transfer was ‘outright’, ie subject only to the lender’s promise to transfer the property back to the borrower if the specified sum was repaid on the specified date.

If, on the other hand, the borrower defaulted on the terms, then the interest in the land automatically passed to the lender and the borrower had no further claim or recourse under the law. In feudal England there were basically two types of mortgages:vadio ad vivum‘, Latin for ‘a living pledge’ in which the borrower used the proceeds of the land to pay off the debt, and ‘vadio ad mortuum‘, Latin for ‘a dead promise’ where the lender was entitled to the proceeds of the land and the borrower had to raise funds elsewhere to pay off the debt. Whereas at first only ‘living pledges’ were legal and ‘dead pledges’ were considered a violation of usury laws and religious teachings, by the 14th century only ‘dead pledges’ remained and all were very legal. and very religious. And, apparently, they are still very religious in the 21st century.

Express contractual terms of a mortgage

Below is an analysis of the clauses contained in most mortgage contracts. It must be emphasized, however, that the wording varies from contract to contract, and that the types of clauses change to fit the particular types of mortgaged securities.

[ ] Redemption

When the mortgagee fulfills its obligations under the contract, the mortgage will be null and the mortgagee will be obliged to return the legal interest to the mortgagee.

[ ] Transferability

All agreements made by the mortgage debtor will be binding for him, his heirs, executors and administrators. This is the case whether the legal interest is held by the mortgagor, or by the mortgagor’s heirs, executors, administrators, or assigns.

[ ] personal pact

The contractual promise made by the borrower is his personal covenant. Therefore, it does not run with the land, so the lender can sue the borrower for his personal agreement even in the event that the borrower has sold the interest in the land to another who has assumed the mortgage. In practice, this means that until the original mortgage agreement is valid, in full force and effect, the original mortgagee is always liable.

[ ] title integrity

The mortgagor confirms and guarantees that he is the owner in fee simple and has all the rights and faculties that such ownership entails, including the right to transfer the land to the mortgagor.

[ ] Free and Clear

This is the very essence of debt collateral: the title must be free of all encumbrances (subject to certain legal rights, such as taxes), in order for the transfer to take place. Upon transfer, the interest is transferred to the lender while the borrower retains possession. But in default, the borrower will also deliver the possession to the lender subject to any lien in priority. This can be a tax lien or, in the case of default on a second mortgage, a first mortgage.

[ ] More guarantees

In the event of default, the mortgagor agrees to do whatever is necessary to enable the lender to obtain title to the property.

[ ] previous liens

Except for legal liens, the mortgage debtor must declare each and every one of the charges that have priority over the contracted mortgage, otherwise the lender expects and has the right to be registered in first priority.

[ ] Sure

The mortgage undertakes to keep the buildings located on said land insured at all times or, failing that, to grant a cash bond that covers the replacement cost of said buildings.

[ ] Release of all claims

The borrower waives any claim he may have against the lender with respect to the property, except the borrower’s right to demand repayment when the underlying debt is paid.

[ ] default acceleration

Acceleration is a condition that, in the event of default, the principal and interest on the underlying debt will be immediately due and payable at the option of the mortgagor.

[ ] quiet possession

Stipulation that, until default, the mortgagee will have the quiet possession of said land.

[ ] Omnibus Clause

In the absence of any payment of money to be paid by the mortgagor under the terms of the mortgage contract, the mortgagor may pay the same and the amount so paid will be immediately added to the principal debt guaranteed by the contract and accruing interest thereon. rate stipulated in the contract.

[ ] Repair

The mortgagee has the duty and obligation to maintain the land and the buildings on it in good condition and in a reasonable state of conservation and, in addition, will not abandon or commit waste in any part of the mortgaged property. This clause is intended to safeguard the value of the lender’s collateral.

[ ] advances

The mortgage will not be obliged to advance any part of the money that is intended to be guaranteed in the mortgage contract. For example, when some money has been advanced and a builder’s lien is subsequently filed against the land, the lender will require that the lien be removed before further funds are advanced. Please note that builder bonds take precedence over mortgages.

[ ] Sale Clause

Also known as ‘Due on Sale’, the mortgagor agrees to pay, at the mortgagor’s option, all principal and interest on the underlying debt at the time of sale of the property. This clause effectively prevents the mortgage from being assumed by anyone unacceptable to the lender. Obviously, the lender’s other option is to not call the loan if the mortgagee sells to a Buyer acceptable to the lender. In the absence of this clause, the mortgage is always assumable.

Louis Frascati