A mortgage is a method of using property (real or personal) as security for the performance of an obligation, usually the payment of a debt.In most jurisdictions mortgages are strongly associated with loans secured on real estate rather than other property (such as ships) and in some cases only land may be mortgaged. Arranging a mortgage is seen as the standard method by which individuals and businesses can purchase residential and commercial real estate without the need to pay the full value immediately. See mortgage loan for residential mortgage lending, and commercial mortgage for lending against commercial property.
In many countries it is normal for home purchases to be funded by a mortgage. In countries where the demand for home ownership is highest, strong domestic markets have developed, notably in Spain, the United Kingdom, and the United States.The creditor has legal rights to the debt or other obligation secured by the mortgage. That debt is often the obligation to repay the loan by the creditor (or its predecessor lender) who provided the purchase money to acquire the property mortgaged. Typically, creditors are banks, insurers or other financial institutions who make loans available for the purpose of real estate purchase.A creditor is sometimes referred to as the mortgagee or lender.
Types of Mortgages
1. Mortgage by Demise
In a mortgage by demise, the creditor becomes the owner of the mortgaged property until the loan is repaid in full (known as "redemption"). This kind of mortgage takes the form of a conveyance of the property to the creditor, with a condition that the property will be returned on redemption.This is an older form of legal mortgage and is less common than a mortgage by legal charge. In the UK, this type of mortgage is no longer available, by virtue of the Land Registration Act 2002.
2.
Mortgage by Legal Charge
In a mortgage
by legal charge or technically "a charge by deed expressed to be by way
of legal mortgage", the debtor remains the legal owner of the property,
but the creditor gains sufficient rights over it to enable them to enforce their
security, such as a right to take possession of the property or sell it.To
protect the lender, a mortgage by legal charge is usually recorded in a public
register. Since mortgage debt is often the largest debt owed by the debtor,
banks and other mortgage lenders run title searches of the real property to
make certain that there are no mortgages already registered on the debtor's
property which might have higher priority. Tax liens, in some cases, will come
ahead of mortgages. For this reason, if a borrower has delinquent property taxes,
the bank will often pay them to prevent the lienholder from foreclosing and
wiping out the mortgage.This type of mortgage is common in the United States
and, since the Law of Property Act 1925, it has been the usual form of mortgage
in England and Wales. In Scotland, the mortgage by legal charge is also known
as standard security.In Pakistan, the mortgage by legal charge is most common
way used by Banks to secure the financing. It is also known as Registered Mortgage.
After registeration of legal charge, Bank's Lien is recorded in land register
stating that the property is under mortgage and can not be sold without obtaining
NOC (No Objection Certificate) from the Bank.
3.
Equitable Mortgage
In an Equitable
Mortgage the lender is secured by taking possession of all the original title
documents of the property and by borrower's signing a Memorandum of Deposit
of Title Deed (MODTD). This document is an undertaking by the borrower that
he/she has deposited the title documents with the bank with his own wish and
will, in order to secure the financing obtained from the bank.
4. Foreclosure and Non-Recourse
Lending
In most jurisdictions, a lender may foreclose on the mortgaged property if certain
conditions - principally, non-payment of the mortgage loan apply. Subject to
local legal requirements, the property may then be sold. Any amounts received
from the sale (net of costs) are applied to the original debt. In
some jurisdictions, mortgage loans are non-recourse loans: if the funds recouped
from sale of the mortgaged property are insufficient to cover the outstanding
debt, the lender may not have recourse to the borrower after foreclosure. In
other jurisdictions, the borrower remains responsible for any remaining debt,
through a deficiency judgment. Specific
procedures for foreclosure and sale of the mortgaged property almost always
apply, and may be tightly regulated by the relevant government. In some jurisdictions,
foreclosure and sale can occur quite rapidly, while in others, foreclosure may
take many months or even years. In many countries, the ability of lenders to
foreclose is extremely limited, and mortgage market development has been notably
slower.
source: wikipedia