A mortgage involves the transfer of an interest in land as security for a loan or other obligation. It is the most common method of financing real estate
transactions. The mortgagor is the party transferring the interest in
land. The mortgagee, usually a financial institution, is the provider of
the loan or other interest given in exchange for the security interest.
Normally, a mortgage is paid in installments that include both interest
and a payment on the principle amount that was borrowed. Failure to
make payments results in the foreclosure
of the mortgage. Foreclosure allows the mortgagee to declare that the
entire mortgage debt is due and must be paid immediately. This is
accomplished through an acceleration clause
in the mortgage. Failure to pay the mortgage debt once foreclosure of
the land occurs leads to seizure of the security interest and its sale
to pay for any remaining mortgage debt. The foreclosure process depends
on state law and the terms of the mortgage. The most common processes
are court proceedings (judicial foreclosure) or grants of power to the
mortgagee to sell the property (power of sale foreclosure). Many states regulate acceleration clauses and allow late payments to avoid foreclosure. Some states use instruments called deeds of trust instead of traditional mortgages.
Three
theories exist regarding who has legal title to a mortgaged property.
Under the title theory title to the security interest rests with the
mortgagee. Most states, however, follow the lien theory under which the
legal title remains with the mortgagor unless there is foreclosure.
Finally, the intermediate theory applies the lien theory until there is a
default on the mortgage whereupon the title theory applies.
The
mortgagor and the mortgagee generally have the right to transfer their
interest in the mortgage. Some states hold that even when the purchaser
of a property subject to a mortgage does not explicitly take over the
mortgage the transfer is assumed. Mortgages employ due-on-sale and
due-on-encumbrance clauses to prevent the transfer of mortgages. These
clauses allow acceleration (having the principal and interest become due
immediately) of the mortgage. In 1982, Congress made these clauses
enforceable nationwide by passage of the Garn-St Germain Depository Institutions Act of 1982. The law of contracts and property govern the transfer of the mortgage's interest.
If
the mortgage being foreclosed is not the only lien on the property then
state law determines the priority of the property interests. For
example, Article 9 of the Uniform Commercial Code governs conflicts
between mortgages on real property and liens on fixtures (personal
property attached to a piece of real estate).
When a mortgage is a negotiable instrument it is governed by Article 3 of the Uniform Commercial Code.
A mortgage may be used as a security interest by the mortgage.
The
law of mortgages is mainly governed by state statutory and common law.
Mortgages are regulated by federal or state law or agencies depending on
under whose law they were chartered or established. The Office of Thrift Supervision, an office in the Department of the Treasury, regulates federally chartered savings associations. The Comptroller of the Currency charters and regulates national banks. Federal credit unions are chartered and regulated by the National Credit Union Administration.
Federal agencies that purchase loans and mortgages are the Federal National Mortgage Association or Fannie Mae, the Federal Home Loan Mortgage Corporation or Freddie Mac, and the Government National Mortgage Association or Ginnie Mae. The federal government also insures mortgages through the Federal Housing Administration and the Department of Veterans Affairs.
No comments:
Post a Comment