Putnam's Handy Law Book for the Layman

Mortgage. - Two kinds of mortgages are given, one kind is secured by real estate, the other kind by personal property. In both the borrower of money pledges his property as security while the money remains unpaid. During this period he usually remains in possession and control of the property, though not always. The borrower is called the mortgagor, the lender the mortgagee. [178]The contract is in writing sealed, is in fact a deed. Sometimes the contract is in two writings, the conveyance of the land and security in one, and the conditions or defeasance on which the conveyance is made in another. It is more usual, however, to set forth the transaction in a single writing or conveyance.

A mortgage may be so made as to cover future advances, but it will not cover them in preference to advances or loans made by another without any knowledge of them. Nor need another person who makes such a loan inquire whether a mortgagor has made any other loan, or for a larger amount than that stated on the public record, where the mortgage deed is recorded. For, it should be added, a mortgage deed is recorded like any other for the benefit of all parties, not only to secure the mortgagee from a later purchaser who might buy if knowing nothing of the prior mortgage, but from another who might be willing to lend on such security like himself; or from a creditor of the mortgagor who might attach the property as belonging to him, if he did not know of the existence of the mortgage. As the record is public, and may be examined by everyone, all who are interested in the property are supposed to examine it and thus find out whether it has been mortgaged, and if it has been, the conditions of the mortgage, and if they do not, their neglect is their own.

Improvements, additions of every kind to property after it has been mortgaged, become a part of it, and if the mortgagee takes future possession, they pass to him. But a difficult question arises sometimes, what additions or improvements are included? We have learned what they are whenever a tenancy relation exists. The law does not [179]favor a mortgagor to the same extent. The test to apply is that of intention. If a mill has been mortgaged, the rule is very broad and the mortgage covers machinery attached by bolts and screws though removable without injury to the premises. If a mortgage has been given, by no evidence can it be shown that the deed was intended as an absolute or entire conveyance of the property. On the other hand by proper evidence it can be shown that an absolute conveyance was intended to be only a mortgage. This has been often done. One may ask, why does the rule not work both ways? There is a much stronger probability of making a mistake in the second case than in the other. One of the facts of great importance in such a dispute is the amount of the consideration or money paid. Suppose a piece of land was worth $1000 and the deed mentioned only $100, unless there was some other explanation, there would be a strong probability that the parties intended only a mortgage which for some reason or other was not completed.

Again, it is a rule of law that an agreement which is in fact a mortgage cannot be changed in character by any other agreement made at the time between the parties relating to the repayment of the money and the return of the property. The law presumes that the entire transaction was embodied in the agreement. "Once a mortgage always a mortgage." Of course this rule does not prevent the parties from making any later arrangement they please about the property.

A mortgage may be made with a power of sale whereby, should the debt be not paid at the time fixed, a valid title may be acquired by a purchase from the mortgagee. The mortgagee thus becomes a kind of trustee or agent for the debtor. This is a g[180]reat responsibility to repose in the mortgagee, and he must perform the trust in good faith in every respect. He must proceed in a way that will best serve the interest of the mortgagor, and strictly observe the terms stated in the mortgage, otherwise the sale will not be valid and the mortgagor can recover his property. If there is a surplus after satisfying the mortgage debt it must be paid to the mortgagor, or, if he is dead, to his heir. Such deeds of trust are made by large corporations to secure loans, and may be made to secure future advances as well as present ones.

If the property is sold to satisfy the mortgage debt, the mortgagee cannot purchase it, unless authorized by statute, or by the terms of the mortgage; but if it is sold by an officer of the law, the mortgagee is as free to purchase it as any other individual. This rule, though, is denied by some courts, which hold he cannot because the officer is acting as the mortgagee's agent.

A vendor or seller of property, may have for the money he is to receive a lien, which is nearly the same thing as a mortgage. A subsequent purchaser would be affected by this lien, however innocent he might be of its existence. But if the purchaser should mortgage the property to a third person, who should put his deed on record, he would gain a valid lien over the vendor. This lien is founded on the idea that the vendor holds the land in trust for the purchaser until he has paid for it, but is not recognized in every state. It is reasonable to suppose that the owner will not sell his land until he has been paid, or the purchase money has been secured. The lien will also prevail against any assignment that the vendor may make for the benefit of creditors, provided he [181]enforces his lien before the assignee begins to execute his trust.

Much has been said about the notice of the vendor's lien. Any reasonable notice will suffice, but what is such a notice to charge, for example, a second purchaser with knowledge? Payment of a part of the money is held to be knowledge of the lien. Again, a vendee who has paid any part of the purchase money before the delivery of the deed to him has a lien for the amount advanced. A third party who pays the purchase money to the vendor for the purchaser and takes a note for the amount does not have such a lien.

The mortgagor in most states is regarded as the real owner and remains in possession; and the mortgagee has a lien, or security for his advance of money or whatever it may be. The mortgagor may sell his land at any time subject to the mortgage, in other words he cannot by any sale impair the mortgagee's security. On the other hand, the mortgagee can transfer, sell or assign his mortgage to another, and this is often done.

Both parties may insure the premises though the mortgagee cannot exceed his debt. If they are destroyed by fire, the mortgagor cannot claim to have the insurance applied in liquidation of the mortgage debt. The mortgagee, therefore, can first collect the insurance money and then proceed to collect the debt that is due to him from the mortgagor. If the sums collected from the two sources exceed the amount advanced to the mortgagor that is only the mortgagee's affair. But if he insures the property at the mortgagor's request or at his expense, then the mortgagor would have the benefit of the insurance.

Frequently several mortgages are made of the [182]same property. The one that is the first recorded has the first lien, the one recorded next the second lien, and so on. And if the property is subsequently sold to pay the mortgage, the first mortgagee has the first claim to the money received, the second mortgagee next and so on. If there is not enough to pay all, the last mortgagee is the first to be cut off, or to receive less than the full amount due to him.

If a testator devises mortgaged land, is the devisee or person who receives the land also entitled to the money due from the mortgagor? Generally, but not everywhere. A bequest of money securities includes a note secured by mortgage. The mortgagor's interest in the land on his death, if leaving no will directing who shall take it, goes to his heirs, and not to his executor or administrator like other personal property. Of course, if there were no other property that could be used to pay his debts, if he had any, it could be claimed and taken by his creditors for that purpose.

The mortgage usually states a time for paying the debt, and if the terms are not observed, the mortgagee may proceed to take the property. This he cannot do in an arbitrary way, except in the case of mortgages in which the mortgagee is entrusted with power to sell the property and apply the money in payment of the debt. In other cases the mortgagee must apply to the court to fix a time for the sale of the property, if the mortgagor fails to make payment. The courts usually give the mortgagor a period of several weeks or months to pay, and if payment is not made at the end of this period, the land is sold by an officer of the court, who conveys the title to the new purchaser, and if there is any surplus left after satisfying the [183]mortgage, this is returned to the mortgagor. If there is a deficit, he is still liable therefor. Any person who is interested in a mortgaged estate has the right to redeem it; heirs, devisees, creditors. On the death of a mortgagor his heirs may call his executor or administrator to pay the mortgage out of the personal estate if there is any, and not from the sale of real estate, because it was given, so the law presumes, for the benefit of the personal estate belonging to the mortgagor. Or, if the land has been given to a devisee, he can require the executor or administrator to pay the mortgage. Again, if two persons are jointly liable for the debt, and one of them pays it, he may call on the other to contribute his portion. See Chattel Mortgage.

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