Overview of Common Mortgage Liens Terms

Instructor: Shawn Grimsley

Shawn has a masters of public administration, JD, and a BA in political science.

Most first time homebuyers must finance their purchase, and lenders will demand a mortgage over the property being purchased to secure payment of the loan. In this lesson, you'll learn about key terms in a standard residential mortgage.

Mortgage Defined

Purchasers of real estate must review and sign several legal documents at the closing of the sales transaction. If the property is financed, one of the most important documents may be the mortgage.

A mortgage is an agreement whereby a borrower agrees to give a lien on the property she is purchasing to the lender in order to secure payment of the loan should she default. In other words, the mortgage is an agreement where the borrower permits her real estate to serve as collateral for the loan. If borrower does default, the bank can seek judicial foreclosure and have her property sold to pay the loan off.

Signed Writing Required

A mortgage is a type of contract between the borrower and lender. Since it is a contract involving an interest in real estate, the statute of frauds applies. The statute of frauds requires that certain contracts, including those relating to an interest in real estate, be in writing and be signed by the person of whom enforcement of the contract will be sought. In this case, the owner of the property will have to sign the mortgage.

Necessary Terms

As you should see by now, a mortgage is very important and giving one can have serious consequences. Consequently, a borrower needs to understand the terms of her mortgage. Let's take a look at some necessary terms found in a mortgage:

  • Identification of the mortgagor and the mortgagee: mortgagor - the property owner that gives the mortgage;mortgagee - the lender that receives it
  • Legal description of property subject to the mortgage
  • Language establishing that the mortgagor is granting (i.e., transferring) a mortgage interest in the property to the mortgagee
  • A reference to the promissory note (i.e., the loan) and its terms underlying the mortgage, including date, principal, interest rate and maturity date

Standard Terms

Most residential mortgages are pretty simple documents as far as legal instruments go, but the terms can vary a bit depending upon the requirements of the lender. Standard terms include:

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