The truth about mortgages, construction loans and foreclosures
Rick Gomez
Despite increasing numbers of the population having a mortgage, it is amazing how few people actually know what they are and how they work. A popular term for one is a mortgage home loan although it should never be referred to as a loan because it isn't. There are three terms that you need to learn that are used: the first is mortgagor (the property owner), the mortgagee (the company that takes on the security for the property) and the mortgage (the contract to pay between the two). This legal agreement is a way to protect the lender from loss by having the very item (house) used as security against defaulting.
Without mortgages being available, people and many businesses would not be able to afford the full asking price of a property if it was required they pay this amount upfront. To help understand how this works, some important information is discussed here. Being the financier, the mortgagee is the person who lends funds to the mortgagor or borrower. A lien is a means by which the mortgagor can purchase a home but it is the mortgagee that retains legal ownership until the arrangement between them has been completed (the debt is paid off).
The property you are buying does in fact become collateral for the finance that has been sought to pay for it and is the protection a mortgagee needs if he is going to continue financing house purchases. This lien is recorded within public records likely to be found at a county courthouse or similar establishment. The lien stays in force while the debt remains but the property is actually owned by the mortgagor. What this means is that even though the mortgagee has possession of the mortgage he is not the owner of the property nor does he have the title.
The only right that your mortgage gives to the mortgagee over your property is to sell it to recover funds in the case that you do not pay off your debt. This is the dreaded process referred to as foreclosure but if the property is used as security, then the foreclosure must go through the court system.
This is done in order for it to be considered legal; this type of foreclosure is referred to as a judicial foreclosure. Obviously there is much more to the subject than this, but these are the basic foundations upon which the mortgaging system has been constructed. Constructions loans work pretty much the same way by having a note and mortgage along with a construction loan rider for the construction loan period.
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