LEGAL OVERVIEW ON REAL ESTATE LOANS

Mortgage In details

A mortgage (also called a “deed of trust” in some states) is a security agreement under which the borrower pledges his or her property as collateral for payment.
  

Promissory Note in Detail

A promissory note”) spells out the amount of the loan, the interest to be paid, how and when payments are made, and what happens if the borrower defaults.

The Deed of Trust

The deed of trust is a document in which the trustor (borrower) gives a deed to the neutral third party (trustee) to hold for the beneficiary (lender).

The Public Recording System

The recording system gives constructive notice to the public of the transfer of an interest in property. Recording simply involves bringing the original document to the local county courthouse or county clerk’s office. The original document is copied onto a computer file or onto microfiche and is returned to the new owner. There is a filing fee of about $6 to $10 per page for recording the document.

Priority of Liens

A mortgage recorded thereafter will be a second mortgage (sometimes called a junior mortgage because its lien position is behind the first mortgage). Likewise, any judgments or other liens recorded later are also junior liens.

What Is Foreclosure?

Foreclosure is the legal process of the mortgage holder taking the collateral for a promissory note in default. The process is slightly different from state to state, but there are basically two types of foreclosure: judicial and nonjudicial. In mortgage states, judicial foreclosure is used most often, whereas in deed of trust states, nonjudicial (called power of sale) foreclosure is used. 

Judicial Foreclosure

Judicial foreclosure is a lawsuit that the lender (mortgagee) brings against the borrower (mortgagor) to force the sale of the property. About one-third of the states use judicial foreclosure. Like all lawsuits, a judicial foreclosure starts with a summons (a legal notice of the lawsuit) served on the borrower and any other parties with inferior rights in the property.

Strict Foreclosure

Two states—New Hampshire and Connecticut—permit strict foreclosure, which does not require a sale. When the court proceeding is started, the borrower has a certain amount of time to pay what is owed. Once that date has passed, title reverts to the lender without the need for a sale.

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