Bad Credit Mortgage Theory
And A Little Law...
A bad credit mortgage is a
pledge of property
to secure the
repayment of a debt. If the debt is not
repaid as agreed
between the lender
and borrower, the
lender can force the
sale of the pledged
property and apply
the proceeds to
repayment of the
debt.
PLEDGE METHODS
A person can
pledge his real
estate as finance collateral
for a loan by using
any of the four
methods: the regular
mortgage, the
equitable mortgage,
the deed as
security, and the
deed of trust.
Regular
Mortgage
The standard
mortgage or regular
mortgage is the
mortgage handed down
from England and the
one commonly found
and used in the
United States today.
In it, the borrower
conveys his title to
the lender as
security for his
debt. The mortgage
also contains a
statement that it
will become void if
the debt it secures
is paid in full and
on time. In the
title theory states,
the conveyance
feature if the
mortgage stands. In
lien theory states,
such a mortgage is
considered to be
only a lien against
the borrower's
property despite its
wording.
Two documents are
involved in a
standard mortgage
loan, a promissory
note and the
mortgage itself;
both are contracts.
The promissory note
establishes who the
borrower and lender
are, the amount of
the debt, the terms
of repayment, and
the interest rate.
Equitable
Mortgage
An equitable
mortgage is a
written agreement
that, although it
does not follow the
form of a regular
mortgage, is
considered by the
courts to be one.
For example, Jones
sells his land to
Smith, with Smith
paying part of the
price now in cash
and promising to pay
the balance later.
Normally, Jones
would ask Smith to
execute a regular
mortgage as security
for the balance due.
However, instead of
doing this, Jones
makes a note of the
balance due him on
the deed before
handing it to Smith.
The law of most
states would regard
this notation as an
equitable mortgage.
For all intents and
purposes, it is a
mortgage, although
not specifically
called one. An
equitable mortgage
can also arise
from the money
deposit accompanying
an offer to purchase
property. If the
seller refuses the
offer and refuses to
return the deposit,
the courts will hold
that the purchaser
has an equitable
mortgage in the
amount of the
deposit against the
seller's property.
Deed of Trust
In some states
debts are often
secured by trust
deed. Whereas a
mortgage is a
two-party
arrangement with a
borrower and a
lender, the trust
deed, also known as
a deed of trust, is
a three-party
arrangement
consisting of the
borrower, the
lender, and a
neutral third party
(a trustee). The key
aspect of this
system is that a
borrower executes a
deed to the trustee
rather than to the
lender. If the
borrower pays the
debt in full and on
time, the trustee
reconveys title back
to the borrower. If
the borrower
defaults on the
loan, the lender
asks the trustee to
sell the property to
pay off the
debt.
Chattel
Mortgage
A mortgage can
also be used to
pledge personal
property as security
for the debt, which
is referred to as a
chattel mortgage.
The word chattel is
a legal term for
personal property
which originated
from the Old English
word for cattle. As
with real property
mortgages, a chattel
mortgage permits the
borrower to use his
mortgaged personal
property as long as
the loan payments
are made. If the
borrower defaults,
the lender is
permitted to take
possession and sell
the mortgaged goods.
In a growing number
of states the use of
chattel mortgages
are being replaced
by security
agreements under the
Uniform Commercial
Code.
Hang in there; you
are doing great!
Mortgage
Theory To Lending
Practices
|
