Mortgage Company
A mortgage is a method of using property (real or personal) as security for the payment of a debt .
Professional Mortgage Services - Medics Financial Services are experienced in providing professional mortgage services and independent financialadvice to the medical and dental professions including GP's in practice partnerships or locum posts, hospital doctors,consultants, dentists and dental principals, vets and opticians.
The term mortgage (from Law French , lit. death vow ) refers to the legal device used in securing the property, but it is also commonly used to refer to the debt secured by the mortgage, the mortgage loan .
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 . New Jersey
Participants and variant terminology
Legal systems tend to share certain concepts but vary in the terminology and jargon used.
In general terms the main participants in a mortgage are:
Creditor
The creditor has legal rights to the debt secured by the mortgage and often makes a loan to the debtor of the purchase money for the property. 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 .
Debtor
The debtor[s] must meet the requirements of the mortgage conditions (and often the loan conditions) imposed by the creditor in order to avoid the creditor enacting provisions of the mortgage to recover the debt. Typically the debtors will be the individual home-owners, landlords or businesses who are purchasing their property by way of a loan.
A debtor is sometimes referred to as the mortgagor , borrower , or obligor .
Other participants
Due to the complicated legal exchange, or conveyance , of the property, one or both of the main participants are likely to require legal representation. The terminology varies with legal jurisdiction; see lawyer , solicitor and conveyancer .
Because of the complex nature of many markets the debtor may approach a mortgage broker or financial adviser to help them source an appropriate creditor typically by finding the most competitive loan. Recently, many US consumers (particularly higher income borrowers) are choosing to work with Certified Mortgage Planners , industry experts that work closely with Certified Financial Planners to align the home finance position(s) of homeowners with their larger financial portfolio(s).
The debt is sometimes referred to as the hypothecation , which may make use of the services of a hypothecary to assist in the hypothecation.
In addition to borrowers, lenders, government sponsored agencies, private agencies; there is also a fifth class of participants who are the source of funds - the Life Insurers, Pension Funds, etc.
Other Terminologies
Like any other legal system, the mortgage business sometimes uses confusing jargon. Below are some terms explained in brief.
Advance This is the money you have borrowed plus all the additional fees.
Base Rate In UK, this is the base interest rate set by the Bank of England . In the United States , this value is set by the Federal Reserve and is known as the Discount Rate .
Bridging Loan This is a temporary loan that enables the borrower to purchase a new property before the borrower is able to sell another current property.
Conveyance This is the legal document that transfers ownership of unregistered land.
Disbursements These are all the fees of the solicitors and governments, such as stamp duty, land registry, search fees, etc.
Early Redemption Charge / Pre-Payment Penalty / Redemption Penalty This is the amount of money due if the mortgage is paid in full before the time finished.
Equity This is the market value of the property minus all loans outstanding on it.
First time buyer This is the term given to a person buying property for the first time.
Freehold This means the ownership of a property and the land.
Land Registration This is a legal document that records the ownership of a property and land. This is also known as a Title .
Leasehold This means the ownership of the property and land for a specified period, which may be sold separately from freehold, which may be owned by another person.
Legal Charge This is a legal document that records the data of the rightful owner of a property or land.
Loan Origination Fee A charge levied by a creditor for underwriting a loan. The fee often is expressed in points. A point is 1 percent of the loan amount.
Mortgage Deed This is a legal document that stated that the lender has a legal charge over the property.
Mortgage Payment Protection Insurance This is a form of insurance that ensures that the current mortgage payment will be paid if the borrower proves unable to do so.
Private Mortgage Insurance This is a form of insurance the lender has the borrower take for loans over 70% of the appraised value. This will pay the lender only the owed portion up to 70% on a defaulted loan.
Sealing Fee This is a fee made when the lender releases the legal charge over the property.
Subject To Contract This is an agreement between seller and buyer before the actual contract is made.
Legal Aspects
There are essentially two types of legal mortgage.
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. It is no longer available in the UK, by virtue of the Land Registration Act 2002 .
Mortgage by legal charge
In a mortgage by legal charge, 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 1925, it has been the usual form of mortgage in England and Wales (it is now the only form - see above).
In Scotland , the mortgage by legal charge is also known as standard security.
See also: Security interests - types of security
History
At common law , a mortgage was a conveyance of land that on its face was absolute and conveyed a fee simple estate , but which was in fact conditional, and would be of no effect if certain conditions were not met --- usually, but not necessarily, the repayment of a debt to the original landowner. Hence the word "mortgage," Law French for "dead pledge;" that is, it was absolute in form, and unlike a "live gage", was not conditionally dependent on its repayment solely from raising and selling crops or livestock, or of simply giving the fruits of crops and livestock coming from the land that was mortgaged. The mortgage debt remained in effect whether or not the land could successfully produce enough income to repay the debt. In theory, a mortgage required no further steps to be taken by the creditor, such as acceptance of crops and livestock, for repayment.
The difficulty with this arrangement was that the lender was absolute owner of the property and could sell it, or refuse to reconvey it to the borrower, who was in a weak position. Increasingly the courts of equity began to protect the borrower's interests, so that a borrower came to have an absolute right to insist on reconveyance on redemption. This right of the borrower is known as the " equity of redemption ".
This arrangement, whereby the mortgagee (the lender) was on theory the absolute owner, but in practice had few of the practical rights of ownership, was seen in many jurisdictions as being awkwardly artificial. By statute the common law position was altered so that the mortgagor would retain ownership, but the mortgagee's rights, such as foreclosure , the power of sale and the right to take possession would be protected.
In the United States, those states that have reformed the nature of mortgages in this way are known as lien states. A similar effect was achieved in England and Wales by the Law of Property Act 1925, which abolished mortgages by the conveyance of a fee simple.
Foreclosure and non-recourse lending
In most jurisdictions, a lender may foreclose 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. In virtually all jurisdictions, specific procedures for foreclosure and sale of the mortgaged property 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.
Mortgages in the United States
Types of Mortgage Instruments
Two types of mortgage instruments are used in the United States: the mortgage (sometimes called a mortgage deed) and the deed of trust.
The mortgage
In all but a few states, a mortgage creates a lien on the title to the mortgaged property. Foreclosure of that lien almost always requires a judicial proceeding declaring the debt to be due and in default and ordering a sale of the property to pay the debt.
The deed of trust
The deed of trust is a deed by the borrower to a trustee for the purposes of securing a debt. In most states, it also merely creates a lien on the title and not a title transfer, regardless of its terms. It differs from a mortgage in that, in many states, it can be foreclosed by a non-judicial sale held by the trustee. It is also possible to foreclose them through a judicial proceeding.
Most "mortgages" in California are actually deeds of trust. The effective difference is that the foreclosure process can be much faster for a deed of trust than for a mortgage, on the order of 3 months rather than a year. Because the foreclosure does not require actions by the court the transaction costs can be quite a bit less.
Deeds of trust to secure repayments of debts should not be confused with trust instruments that are sometimes called deeds of trust but that are used to create trusts for other purposes, such as estate planning. Though there are superficial similarities in the form, many states hold deeds of trust to secure repayment of debts do not create true trust arrangements.
Mortgage Company New Jersey
Debt instrument giving conditional ownership of an asset, secured by the asset being financed. The borrower gives the lender a mortgage in exchange for the right to use the property while the mortgage is in effect, and agrees to make regular payments of principal and interest. The mortgage lien is the lender's security interest and is recorded in title documents in public land records. The lien is removed when the debt is paid in full. A mortgage normally involves real estate and is a long-term debt, normally 25 to 30 years, but can be written for much shorter periods.
Originally written exclusively as fixed-rate fully amortizing loans, mortgages have evolved into more flexible contracts. Since the mid-1970s, the financial industry's funding sources have become more volatile and market sensitive, and legislation and regulation have relaxed the prohibitions on alternative types of mortgage financing, such as variable rate and adjustable rate mortgages. Recent innovations in packaging of mortgage loans for resale in the Secondary Mortgage Market to investors have helped to create a national market for mortgage lending and a wide variety of synthetic financial instruments, such as the Collateralized Mortgage Obligation a multiclass security consisting of several different mortgage backed bonds that have payment characteristics quite different from the mortgages securing the bonds.
Mortgage Information
A legal document by which the owner (buyer) transfers to the lender an interest in real estate to secure the repayment of a debt, evidenced by a mortgage note. When the debt is repaid, the mortgage is discharged, and a satisfaction of mortgage is recorded with the register or recorder of deeds in the county where the mortgage was recorded. Because most people cannot afford to buy real estate with cash, nearly every real estate transaction involves a mortgage.
The party borrowing the money and giving the mortgage (the debtor ) is the mortgagor; the party paying the money and receiving the mortgage (the lender) is the mortgagee. Under early English and U.S. law, the mortgage was treated as a complete transfer of title from the borrower to the lender. The lender was entitled not only to payments of interest on the debt but also to the rents and profits of the real estate. This meant that as far as the borrower was concerned, the real estate was of no value, that is, "dead," until the debt was paid in full— hence the Norman-English name "mort" (dead), "gage" (pledge).
The mortgage must be executed according to the formalities required by the laws of the state where the property is located. It must describe the real estate and be signed by all owners, including nonowner spouses if the property is a homestead. Some states require witnesses as well as acknowledgement before a notary public.
The mortgage note, in which the borrower promises to repay the debt, sets out the terms of the transaction: the amount of the debt, the mortgage due date, the rate of interest, amount of monthly payments, whether the lender requires monthly payments to build a tax and insurance reserve, whether the loan may be repaid with larger or more frequent payments without a prepayment penalty, and whether failing to make a payment or selling the property will entitle the lender to call the entire debt due.
State courts have devised varying theories of the legal effect of mortgages: some treat the mortgage as a conveyance of the title, which can be defeated on payment of the debt; others regard it as a lien, entitling the borrower to all the rights of ownership, as long as the terms of the mortgage are observed. In California a deed of trust to a trustee who holds title for the lender is the preferred security instrument.
At common law, if the borrower failed to pay the debt in full at the appointed time, the borrower suffered a complete loss of title, however long and faithfully payments had been made.
Courts of equity, which were originally ecclesiastical courts, had authority to decide cases on the basis of moral obligation, fairness, or justice, as opposed to the law courts, which were bound to decide strictly according to the common law. Equity courts softened the harshness of the common law by ruling that the debtor could regain title even after default, but before it was declared forfeit, by paying the debt with interest and costs. This form of relief is known as the equity of redemption.
Now nearly all states have enacted statutes incorporating the equity of redemption, and many have also enacted periods of redemption, specifying lengths of time within which the borrower may redeem. Although some debtors, or mortgagors, are able to avoid foreclosure through equity of redemption, many are not, because redeeming means coming up with the balance of the mortgage plus interest and costs, something a financially troubled debtor may not be able to accomplish. However, because foreclosure upends the agreement between mortgagor and mortgagee and creates burdens for both parties, lenders are often willing to work with debtors to help them through a period of temporary difficulty. Debtors who run into problems meeting their mortgage obligations should speak to their lender about developing a plan to avert foreclosure.
Failure to redeem results in foreclosure of the borrower's rights in the real estate, which is then sold by the county sheriff at a public foreclosure sale. At a foreclosure sale, the lender is the most frequent purchaser of the property.
If the bid at the sale is less than the debt, even if it is for fair market value, the lender may be granted a deficiency judgment for the balance of the debt against the debtor, with the right to resort to other assets or income for its collection.
Often other creditors bid at the sale to protect their interest as judgment creditors, second mortgagees, or mechanic's lien claimants. All such persons must be notified of the foreclosure suit and given a right to bid at the sale to protect their claims. Similar protections are afforded transactions involving deeds of trust.
Subdivision or condominium development mortgages that cover a large tract of land are blanket mortgages. A blanket mortgage makes possible the sale of individual lots or units, with the proceeds applied to the mortgage, and partial release of the mortgage recorded to clear the title for that lot or unit.
Construction mortgages need special treatment depending on state construction lien law. Often the loan proceeds are placed in escrow with title insurance companies to make certain that the mortgage remains a first lien, with priority over contractors' construction liens.
Open-end mortgages make possible additional advances of money from the lender without the necessity of a new mortgage.
The time of repayment may be extended by a recorded extension of mortgage. Other real estate may be added to the mortgage by a spreading agreement. Mortgaged real estate may be sold, with the buyer taking either "subject to" or by "assuming" the mortgage. In the former case, the buyer acknowledges the existence of the mortgage and, upon default, may lose the title. By assuming the mortgage, the buyer promises to repay the debt and may be personally liable for a deficiency judgment if the sale brings less than the debt.
Lenders regularly assign mortgages to other investors. Assignments with recourse are guarantees by the one who assigns the mortgage that that party will collect the debt; those without recourse do not contain such guarantees. Assignments with recourse usually involve lower-risk properties or those of relatively stable or rising value. Assignments without recourse tend to involve riskier properties. Mortgages assigned without recourse are often sold at a price discounted well below their market value.
Before the Great Depression of the 1930s, most mortgages were "straight" short-term mortgages, requiring payments of interest and lump-sum principal, with the result that when incomes dropped, many borrowers lost their properties. That risk is minimized today because commercial lenders take fully amortized mortgages, in which part of the periodic payment applies first to interest and then to principal, with the balance reduced to zero at the end of the term.
Several agencies of the federal government have assisted the mortgage market by infusion of capital and by guarantees of repayment of mortgages. The Federal Housing Administration made possible purchases of real estate at low interest rates and with low down payments. The Veterans Administration also guarantees home loans to certain veterans on favorable terms. Both agencies contributed greatly to the growth of the housing market after World War II. In the late 1950s, private corporations began insuring repayment of conventional mortgages.
The Government National Mortgage Association (Ginnie Mae), created by the U.S. government in 1968, makes possible trading in mortgages by investors by guaranteeing mortgages-backed securities.
The Federal National Mortgage Association (Fannie Mae) is a private corporation, chartered by the U.S. government, that bolsters the supply of funds for home mortgages by buying mortgages from banks, insurance companies, and savings and loans.
Inflation in the 1970s made long-term fixed-rate mortgages less attractive to lenders. In response, lenders devised three types of mortgage loans that enable the rate of interest to vary in case of rises in rates: the variable-rate mortgage, graduated payment mortgage, and adjustable-rate mortgages. These mortgages are offered at initial interest rates that are somewhat lower than those for twenty- to thirty-year fixed-rate mortgages.
Home equity loans are typically second mortgages to the holder of the first mortgage, advancing funds based on a percentage of the owner's equity, that is, the amount by which the value of the real estate exceeds the first mortgage balance.
