Fundamentals of Mortgage Law

A mortgage is an interest in land created by a contract, not a loan. Although almost all mortgage agreements contain a promise to pay a debt, a mortgage is not a debt 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 the condition sine qua non that interest will be returned when the terms of the mortgage contract are fulfilled. A mortgage contract generally 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 the reason the borrower is allowed to remain on the title as the registered owner. In practice, he retains possession of the land but the lender is entitled to interest in the land.

In essence, therefore, a mortgage is an assignment 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 contract, the borrower is called the ‘mortgagor’ and the lender the ‘mortgagee’.

The history of mortgage law

Mortgage Law originated in the English feudal system as early as the 12th century. At that 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 conveyance was ‘absolute’, ie subject only to the lender’s promise to convey 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 claims or recourse at 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 from the land to pay off the debt, and ‘Vadio ad mortuum‘, Latin for ‘a dead promise’ where the lender was entitled to the revenue from the land and the borrower had to raise funds elsewhere to pay off the debt. Whereas at first only ‘living garments’ were legal and ‘dead garments’ were considered a violation of usury laws and religious teachings, by the 14th century only ‘dead garments’ remained and they were all very legal. and very religious. And, apparently, they are still very religious in the 21st century.

Express contractual terms of a mortgage

An analysis of the clauses contained in most mortgage contracts is presented below. It should 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 mortgagor complies with his obligations under the contract, the mortgage will be void and the mortgagor will be obliged to return the legal interest to the mortgagor.

[ ] transferability

All agreements made by the mortgagor will be binding on him, his heirs, executors and administrators. This is the case whether the legal interest is held by the mortgagee, or by the mortgagee’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 contract is valid, in full force and effect, the original mortgagor is always liable.

[ ] Title Integrity

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

[ ] Free and Clear

This is the very essence of debt security: 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 conveyance, the interest is transferred to the lender while the borrower retains possession. But in default, the borrower will also surrender the possession to the lender subject to any liens in priority. This can be a tax lien or, in the case of a default on a second mortgage, a first mortgage.

[ ] More guarantees

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

[ ] prior liens

Except for legal liens, the mortgagor must declare each and every one of the charges that have priority on the mortgage that is contracted, 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 they 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 immediately become due and payable at the option of the mortgagee.

[ ] quiet possession

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

[ ] Omnibus Clause

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

[ ] Repair

The mortgagor has a duty and obligation to keep the land and the buildings therein in good condition and in a reasonable state of repair and, furthermore, 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.

[ ] progress

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 later filed against the land, the lender will require the lien to 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 claim the loan if the mortgagor sells to a Buyer acceptable to the lender. In the absence of this clause, the mortgage is always assumable.

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