The truth about foreclosures, mortgages and construction loans
This article is hopefully going to explain many of the things people believe about mortgages that are actually false. They are not for instance a loan, even though the vast majority of people believe they are and often refer to them as a mortgage home loan. A mortgage is a secured debt using the property that is being purchased as the security for the debt until it is fully repaid. This legal agreement is a way to protect the lender from loss by having the very item (house) used as security against defaulting.
Without mortgages being available, people and many businesses would not be able to afford the full asking price of a property if it was required they pay this amount upfront. Misunderstandings on how the system works also create problems but the main points are dealt with during the rest of this article. The problem arises because so many people refer to the buyer as the Borrower and the financier as The Lender which leads people to believe that the money has been loaned which is not the case. A security measure designed for purchasing properties, called a lien, is enforced until the mortgage is cleared at the end of the term.
The property you are buying does in fact become collateral for the finance that has been sought to pay for it and is the protection a mortgagee needs if he is going to continue financing house purchases. This lien is recorded within public records likely to be found at a county courthouse or similar establishment. The lien stays in force while the debt remains but the property is actually owned by the mortgagor. What this means is that even though the mortgagee has possession of the mortgage he is not the owner of the property nor does he have the title.
The only right the mortgagee has over the property now is if payments are missed and the property needs to be sold so the mortgagee can recoup his funds. This is the dreaded process referred to as foreclosure but if the property is used as security, then the foreclosure must go through the court system.
The reason behind this process is to ensure the legal procedures have been followed and also why it is called Judicial Foreclosure. This is the subject in brief and while there is a great deal more to it, perhaps this will help to clear up any ambiguities you may have previously experienced. Constructions loans work pretty much the same way by having a note and mortgage along with a construction loan rider for the construction loan period.
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