What are Legal Mortgages?

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Mortgage by demise

In a mortgage by demise, the mortgaged property is transferred to the creditor, hence s/he becomes the owner of the property until the Loan is repaid, or redemption takes place. This type of mortgage takes shape of a conveyance of the property to the creditor, with a guarantee that the property will be returned to the borrower once the redemption takes place.

This is the original form of legal mortgage and is less commonly used than a mortgage by legal charge. In many countries, especially the UK, this form of mortgage is no longer available, by virtue of the Land Registration Act 2002.

Mortgage by Legal Charge

By virtue of law, a mortgage by legal charge is “a charge by deed expressed to be by way of legal mortgage”. In it, the debtor continues to enjoy the legal ownership of the property. On the other hand, the creditor enjoys an edge over the rights of the ownership of the property with which it can enforce the debtor’s security, such as the right to sell the property to compensate the mortgage.

To overcome the problems faced by the lender, a mortgage by legal charge is usually registered in a public register. This allows banks and other mortgage lenders to run title searches of the real estate property to make sure that the property mortgaged by the debtor has no additional mortgages on it, which might have higher priority, because the mortgage debt is by far the largest debt owned by the debtor and hence, this precaution is necessary. As property is liable to property laws because of which, tax liens are imposed on before mortgages, banks and other mortgages lenders usually pay the property taxes that the borrower may have to prevent the lienholder from foreclosing and dissolving the mortgage.

In many countries, especially in the United States and in England and Wales, mortgage by legal charge is common form of mortgage. In Scotland, it is also called standard security.

Equitable Mortgage

Another type of mortgage that was not as previously known as it is now is an equitable mortgage. In an equitable mortgage, the lender is guaranteed and secured by getting the possession of all the original title documents of the property before lending out the money, and by making the borrower sign a Memorandum of Deposit of Title Deed (MODTD). This document is an undertaking by the borrower claiming that the title documents that s/he has deposited with the bank is without any influence and with his/her own wish and will, in order to secure the financing obtained from the bank.

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