Legal Aspects
There are basically two types of legal mortgage.
1- Mortgage by demise
2- Mortgage by legal charge
Mortgage by demise
In a mortgage by demise, the creditor becomes the owner of the mortgaged property until the loan is repaid in full (”redemption”). This kind of mortgage takes the form of a conveyance of the property to the creditor, with a condition that the property will be returned on redemption.
This is an older form of legal mortgage and is less common than a mortgage by legal charge. It is no longer available in the UK, by virtue of the Land Registration Act 2002.
Mortgage by legal charge
In a mortgage by legal charge, the debtor remains the legal owner of the property, but the creditor gains sufficient rights over it to allow them to enforce their security, such as a right to take possession of the property or sell it. To protect the lender, a mortgage by legal charge is usually recorded in a public register. Since mortgage debt is often the largest debt owed by the debtor, banks and other mortgage lenders run title searches of the real property to make certain that there are no mortgages already registered on the debtor’s property which might have higher priority. Tax liens, in some cases, will come ahead of mortgages. For this reason, if a borrower has delinquent property taxes, the bank will often pay them to prevent the lien holder from foreclosing and wiping out the mortgage.
This type of mortgage is common in the United States and, since 1925, it has been the usual form of mortgage in England and Wales (it is now the only form - see above).
In Scotland, the mortgage by legal charge is also known as standard security.
Foreclosure and non-recourse lending
In most jurisdictions, a lender may foreclose the mortgaged property if certain conditions - principally, non-payment of the mortgage loan - obtain. Subject to local legal requirements, the property may then be sold. Any amounts received from the sale are added to the original loan. In some jurisdictions, mortgage loans are non-recourse loans: if the funds earned from sale of the mortgaged property are insufficient to cover the outstanding debt, the lender may not have recourse to the borrower after foreclosure. In other jurisdictions, the borrower remains accountable for any remaining debt. In nearly all jurisdictions, specific measures for foreclosure and sale of the mortgaged property apply, and may be firmly regulated by the relevant government; in some jurisdictions, foreclosure and sale can take place rather fast, while in others, foreclosure may take many months or even years. In many countries, the ability of lenders to foreclose is very controlled, and mortgage market development has been notably slower.
