There are many misconceptions about mortgages which I hope this article will put right. Often referred to as a mortgage home loan, they are not a loan in the traditional meaning of the word. There are three terms that you need to learn that are used: the first is mortgagor (the property owner), the mortgagee (the company that takes on the security for the property) and the mortgage (the contract to pay between the two). However, it is easier to explain it as a legally binding document where the lender is protected from loss by using the property as security for the debt.
The facility that a mortgage creates means individuals and companies can acquire land or property without needing the full face value to purchase it at the time. Although this article is brief, below are points that will help more in the understanding of how this system operates. As it is not a loan, the mortgagor should not be called The Borrower but mortgagor and the company providing the finance should not be called The Lender because they are the mortgagee. A lien is a means by which the mortgagor can purchase a home but it is the mortgagee that retains legal ownership until the arrangement between them has been completed (the debt is paid off).
The mortgagee's money is then protected by this knowing the property is in fact security against its own debt. Being a legal contract, the lien will be lodged within the records at the county or city courthouse (or a similar public office). While the property is owned now by the mortgagor, the lien cannot be reversed until the amount specified in the debt is paid off. This situation may seem strange but in essence what it means is that the property is owned completely by the mortgagor and not the mortgagee who also does not have the title.
The mortgage is a surety for the benefit of the mortgagee, so should the debt remain unpaid then the amount owed can be reclaimed by the sale of the property. Should they need to reclaim these costs then the case will be held in court and the procedure called foreclosure will be started. To ensure that everything is legal and above board, the court will place a ruling on the disposal in a process called judicial foreclosure. I hope this brief introduction has further helped your understanding of an important but often overlooked area of personal finance.
