We have clients who are asking and expressing concerns about what will happen after the mortgage and rent COVID relief expire. The word “foreclosure” means “to stop” or “to prevent.” Today, we are familiar with the word primarily because of its use in reference to mortgages. In law, to foreclose a mortgage means to cut off a borrower (also called a “mortgagor”) from their right to redeem a property. Foreclosure provides the legal means by which a property owner may be stripped of that property due to their failure to uphold the terms of the contract they made when they borrowed money and pledged their real property as security for the loan.
Now, a word about banks and mortgages. Banks do not give mortgages. This may surprise many people, but it is nevertheless true. Banks loan money and take back mortgages as security for the loan. Thus, if your friend tells you that he “got a mortgage from XYZ Savings Bank,” he may be using accepted terminology to describe the transaction that took place, but he is not entirely correct. This is an important point to bear in mind, for reasons that will become clear as we continue in this article.
Purchase money mortgages are usually signed at a closing where the seller simultaneously gives a deed to the purchaser. At that time, the purchaser executes papers that are then given to the title company representative, who ensures that they are recorded in the local county clerk’s office. Of course, the papers include the deed to the property and the mortgage papers, which pledge the property as security for the loan.
The party mortgaging or pledging is the new owner, and in this instance, they become the mortgagor. The bank, which is the entity to whom the property is pledged, becomes the mortgagee. People often confuse these terms because they perceive the bank as the owner of the mortgage. Many of the words used in real estate have their roots in English law, which was based on Roman law. In Latin, “or” denotes a person performing an action, while “ee” is the one receiving the action. Hence, terms such as mortgagor/mortgagee, grantor/grantee, offeror/offeree, and so on, are common in real estate transactions. Understanding the terminology is crucial.
In some states, there are mortgages, while in others, there are deeds of trust. A deed of trust differs from a mortgage in that the borrower hypothecates their legal title on the property to a trustee who holds the actual legal title while the debt exists. The process is a pledge of the property to a third party to ensure that the borrower will make payments as agreed.
The deed of trust is favored by banks because it makes the foreclosure process considerably easier if the need arises. Mostly, no judicial approval is required to begin foreclosure; in effect, the receiver is already appointed. As an owner, you should note that in many areas, the deed of trust carries with it something called the “right of redemption.”
The right of redemption is a process whereby the defaulting mortgagor can regain title to the property by fulfilling specific legal requirements. Although the property has been foreclosed, this foreclosure is revocable and can be overturned. The process is similar to an appeal. Rights of redemption exist only in certain specific instances; we’ll review them in upcoming posts.
Remember, if you are facing or have received a notice of foreclosure, speaking with a CRG HOMES NJ or any real estate agent may be a good idea. We may be able to help you and guide you with a short sale before you go into foreclosure or suggest some out-of-the-box negotiation alternatives that your lender may accept. By short selling your home, you save your credit, save money, and avoid dealing with all the aggravations. Also, if the market is hot, you will not have issues selling your property and getting out. If you are thinking about selling, get your free property report at buyselljerseyhome.com.
