What Is A Mortgage?

This 'What Is A Mortgage' report
is a collaboration of authors who are
Commercial Mortgage Brokers, licensed Residential Mortgage Brokers, along with the authors personal experiences.

When a Person buys a home, unless they are fortunate enough to pay all cash, they have had to borrow the money for the purchase.  The bank, other financial institution, or private lender who loans you the money to purchase the home is your 'lender'.

At closing, most new homeowner's assume

that the mountain of documents they are presented with

are the mortgage.  

There are actually many separate documents

that make up that mountain of paperwork.  

 A properly licensed 'title company'

will handle all the paperwork and money transactions

to guarantee all parties involved

that all the terms of the 'Purchase and Sale Agreement'

as well as any 'closing agreements' are handled properly.

The title company will guarantee the homeowner

gets clear title to the property,

other than known and accepted easements

and of course,

the new loan for the purchase of the property,

which the title company shall record as a first mortgage.

The title company guarantees the lender that they will be in the first 'lien holder' position on the title to the property.

The title company is also responsible for making sure

all money is distributed to all parties involved correctly, i.e.;

RESPA and Truth In Lending

At closing you will be presented with multiple documents,

these documents are regulated by

'RESPA' and 'Truth In Lending' laws.

It is required that you fully understand every document and that these documents represent the actual numbers that you had been quoted prior to closing, otherwise this transaction may be in violation of the regulating laws.

If your closing and/or mortgage and other documents were prepared incorrectly, as 80% of closings and documents from 2000 to 2007 were, you may be able to challenge your mortgage as a defense to foreclosure.   This area will be further explained in the solutions to foreclosure report.

The Promissory Note

As with any type of loan,the lender will have you sign a 'promissory note'.   

The promissory note is as it's name states,

your promise to repay the loan.  

The promissory note contains t

he information and terms of the loan, i.e.;

It is important to understand that the promissory note is what binds you to be personally responsible for the amount owed.

The Mortgage

 A mortgage represents a loan or lien on a property/house
that has to be paid over a specified period of time.

Think of it as your personal guarantee that you'll repay the money you've borrowed to buy your home.

Mortgages come in many different shapes and sizes,

each with its own advantages and disadvantages. 

The mortgage is an instrument that stipulates the 'collateral' for the promissory note, and how the collateral (property) is to be handled.

The mortgage, not the promissory note, is recorded as a lien against the property described in the mortgage in the amount of the promissory note.

Recap and example

 The title to the property is placed in the purchaser's name

(the one signing the contracts).

The promissory note is simply a loan agreement

which spells out the amount of money borrowed

and the repayment terms.

Both the promissory note and the mortgage

are signed at closing,

and most people think of all that paperwork as one document.

I am sure you have heard of someone buying a home with the equity of another property. In such a case, a property purchase contract is written, the money is arranged to be borrowed with the promissory note, the property is purchased, but the mortgage is issued against a property at a different address.

This is what makes real estate ownership different from any other type of property you will own in your life.

The title to the property is in your hands. 

The second common major purchase

in our lives is an automobile,

where the title is in your name and encumbered (lien) by a loan agreement contract (promissory note) but you don't have the title in your hands, the lender holds the title.

You must pay off the lien against the automobile

before you get the title.

In real estate, you have the title. 

This is why the mortgage has clauses that do not allow you to transfer ownership of the property

or any part of the property to someone else.

Important Warning

This is very important to understand 

The promissory note is on you 

the mortgage is on the property. 

If you are somehow persuaded to transfer your ownership in the property by quit claim deed or warranty deed,

IT DOES NOT TRANSFER THE PROMISSORY NOTE!!

You are still responsible for the payment,

but now you have NO  ownership

or right of possession of the property!

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