Real Estate Tips

Definition of a Mortgage

At common law, a mortgage amounted to a conveyance of an estate to the mortgagee, which conveyance became void upon the performance of the terms of the mortgage. Today, it is considered more in the nature of a lien upon the estate to secure the performance, normally a money payment, specified in the instrument. The term mortgage is commonly used to denote the instrument by which such interest in property is transferred. Any instrument or legal form which conveys the an interest in property for the purpose of giving security is in effect a mortgage, regardless of its form.

Several of the terms used in the above definition require further clarification. We have the understanding that a deed is an instrument that conveys title to real property. A conveyance is a transfer of the interest in property from one person to another. In mortgage transactions, the debtor or borrower is called the mortgagor. The creditor of lender is called the mortgagee. The period for which the mortgage is made is called the term. 

In order that a conveyance of the type required in a mortgage transaction be valid, it must be in writing, must be executed by the mortgagor with all the formality prescribed by the statutes of the particular state in which the property lies, and must be delivered to the mortgagee. The laws of the state in which the property is located govern the mortgage transaction.

At the present time some states provide that the title, as well as the possession of the property, is kept by the mortgagor, the mortgage being regarded merely as a lien and not as an actual conveyance of title. These are called lien theory states, as contrasted with title theory states, in which the law more nearly resembles the earlier concept.

The arbitrary forfeiting of all rights in the property by the borrower in case he defaulted on the debt worked considerable hardship on the mortgagor, particularly in those cases where the value of the property was considerably greater than the debt. This aspect of the earlier law of mortgages was also changed. At the present time, all states require that some legal steps be taken by the mortgagee after default of the debt before the property can be proceeded against for debt payment. Such legal steps are now called foreclosures.