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Mortgages
A mortgage is a type of assignment. Where a property is used as security for a loan, that property is assigned by the borrower to the lender under a mortgage for the period of the loan until it is repaid. It is not an absolute assignment since the title to the property does not pass and the arrangement is temporary (albeit for several years). The property can be reassigned to the borrower on repayment of the loan. This right is known as the equity of redemption and it is this right which removed the mortgage from being an absolute assignment.
A legal mortgage is where the legal interest in the property is assigned by the borrower (mortgagor) to the lender (mortgagee) by a deed of mortgage.
It is also possible to have an equitable mortgage.
During the mortgage the mortgagee has certain rights which allow him to enforce his rights of security.
Types of mortgage
The most common type is where a specific sum is borrowed although there are mortgages which allow for a specific sum plus further allowances. The mortgage deed needs to be suitably worded and a receipt clearly given for each further advance. These receipts can be endorsed onto the mortgage document. Where the money has been lent by a bank it is common practice for the mortgage not to specify a specific sum, but simply to refer to amounts outstanding which may vary from time to time.
Second mortgages
The first time the borrower borrows on the property by way of mortgage the mortgage deed is called a mortgage. The value of the property however may rise and the borrower has equity in the property to the value of the property above and in excess of the mortgage. If the borrower wishes to borrow again and secure that second lot of borrowing on the same property, he will need to take out a second mortgage. This second mortgage can only be secured on the remaining equity belonging to the borrower and is therefore less secure. This is why second mortgages are often charged at a higher lending rate. The second mortgage is always second in priority to the original mortgage.
Transfer of mortgages
This is where the mortgagee transfers his rights under the mortgage to another party who then becomes the new mortgagee. This can occur when one lender takes over from another or when another party pays off the loan and takes on the security of the mortgage by becoming the mortgagee.
Sub mortgages
This occurs when the lender (mortgagee) wishes to raise money and wants to use their rights under the mortgage as security. The mortgagee does not completely part with their interest in the property via the mortgage but simply uses part of that mortgage as collateral. The sub-mortgagees title rests on that of the mortgagee. The sub mortgagee should serve notice on the mortgagor so that the latter does not repay the loan to the first mortgagee without advising the sub mortgagee. The sub-mortgagees proof of title is the life insurance policy, the mortgage deed and the sub mortgage deed.
Collateral mortgages
The mortgage debt may be secured by the primary asset of the property (house) and by way of collateral security the life policy may be included as further security in the event of the death of the mortgagor.
Collateral security can also be provided by another party in the form of surety.
If the mortgagee enforces that security then the third party is in the same position as the mortgagee and has the right to obtain a charge on the primary property.