Beginner's Guide to Mortgages

Buying your first home should be a joyous event. However, trying to grasp all of the legal terminology and concepts associated with mortgages can be a daunting task. Here is a beginner's guide to mortgages.

A mortgage is the conveyance of a security interest in land, intended by the parties to be collateral for the repayment of a monetary obligation. Mortgages are essentially the union of two elements: a debt and a voluntary transfer of a security interest in the debtor's land to secure the debt. By way of vocabulary for beginners, the debtor is the mortgagor and the creditor is the mortgagee.

Mortgages must be in writing in order to satisfy the Statute of Frauds. This document is known as the legal mortgage, and is also known as the note, the mortgage deed, security interest in land, deed in trust, or the sale-leaseback.

In an equitable mortgage, instead of executing a note or mortgage deed, the debtor hands the creditor a deed absolute on its face.

If the creditor goes ahead and sells the property to a bona fide purchaser, the debtor's only recourse is to proceed against the creditor for fraud and to recover the proceeds from the sale.

Once a mortgage has been created, the debtor-mortgagor has title and right to possession. The creditor-mortgagee has a lien and a right to look to the property if the debtor defaults.

All parties to a mortgage can transfer their interest. A mortgage automatically follows a properly transferred note. The creditor-mortgagee can transfer his interest by endorsing the note and delivering it to the transferee, or by executing a separate document of assignment.

If the debtor-mortgagor sells the property which is now mortgaged, the lien remains on the land so long as the mortgaged instrument has been properly recorded. All recording statutes apply to mortgages as well as deeds.

Who is personally liable on the debt if the debtor-mortgagor sells the property? If the buyer "assumed the mortgage," both the debtor-mortgagor and the buyer are personally liable. The buyer is primarily liable, and the debtor is secondarily liable.