What is Mortgaged Property?
Mortgaged Property is a piece of real estate or personal property that is used as collateral to secure a loan. The borrower provides the lender with a legal claim over the property, and if the borrower fails to repay the loan under the agreed-upon terms, the lender has the right to foreclose on the property and sell it to recover the debt. Mortgaged property is common in securing financing for purchasing a home or investment property.
Key Aspects:
- Collateral: The property serves as collateral for the loan, reducing the lender’s risk.
- Lien: A legal claim called a lien is placed on the property, giving the lender rights over it if the borrower defaults.
- Borrower Retention: The borrower retains the ownership of the property despite the lien.
- Foreclosure Rights: Lenders may initiate foreclosure proceedings if the borrowing terms are violated.
Examples:
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Residential Mortgage: John takes out a mortgage to purchase a home. His house becomes the mortgaged property where the bank holds a lien until the mortgage is paid off.
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Commercial Property Mortgage: A business owner pledges their office building as mortgaged property to secure a business loan.
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Refinancing Mortgage: Mary refinances her home by taking another mortgage; her home remains the mortgaged property under the new terms.
Frequently Asked Questions (FAQs)
Q1: What happens if a borrower defaults on their mortgage? If a borrower defaults, the lender has the right to foreclose on the property, selling it to recover the outstanding debt.
Q2: Can mortgaged property be sold? Yes, mortgaged property can be sold, but the outstanding mortgage must be paid off at closing, especially if a Due-On-Sale Clause exists in the loan agreement.
Q3: What is a Due-On-Sale Clause? A Due-On-Sale Clause is a provision in a mortgage allowing the lender to demand full repayment if the property is sold.
Q4: How does one remove a lien from mortgaged property? A lien can be removed by repaying the mortgage in full. Upon payment, the lender will issue a release of lien.
Q5: Can you use personal property as mortgaged property? Yes, items such as cars or valuable personal property can also be used as collateral for securing loans.
Related Terms with Definitions
- Mortgage: A legal agreement by which a bank or other creditor lends money at interest in exchange for taking title of the debtor’s property.
- Collateral: Assets that a borrower offers to a lender to secure a loan.
- Foreclosure: The legal process by which a lender takes control of a property, evicts the homeowner, and sells the home after a borrower fails to repay the entire mortgage loan amount.
- Lien: A legal claim or right against a property.
Online Resources
- Investopedia - Mortgage Definition
- HUD - Understanding Mortgages
- The Balance - Types of Mortgage Lenders
References
- Federal Housing Administration, “Understanding Your Mortgage,” HUD.gov.
- The Balance, “How Mortgages Work,” TheBalance.com.
- Investopedia, “Mortgage Breakdown,” Investopedia.com.
Suggested Books for Further Studies
- “The Mortgage Encyclopedia” by Jack Guttentag
- “Mortgages 101: Quick Answers to Over 250 Critical Questions” by David Reed
- “The Real Estate Wholesaling Bible” by Than Merrill
- “Real Estate Finance & Investments” by William B. Brueggeman and Jeffrey D. Fisher
