{"id":2713,"date":"2023-01-13T11:22:22","date_gmt":"2023-01-13T16:22:22","guid":{"rendered":"https:\/\/www.deeds.com\/articles\/?p=2713"},"modified":"2024-04-25T23:18:10","modified_gmt":"2024-04-26T03:18:10","slug":"your-mortgage-and-the-law-an-overview","status":"publish","type":"post","link":"https:\/\/www.deeds.com\/articles\/your-mortgage-and-the-law-an-overview\/","title":{"rendered":"Your Mortgage and the Law: An Overview"},"content":{"rendered":"\n
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A mortgage loan is an ordinary part of financing today\u2019s home purchase. It transfers a lien<\/a> \u2014 a legal claim on a piece of real estate \u2014 to the lender, to secure<\/em> the home loan. This lien is there to ensure the repayment of the loan.<\/p>\n\n\n\n

It\u2019s an age-old concept. As explained by H. W. Chaplin in the Harvard Law Review<\/em> back in 1890:<\/p>\n\n\n\n

When this country was colonized, about A.D. 1600, the law of mortgage was perfectly well settled in England. Theoretically our ancestors brought this law to America with them, and during the one hundred and fifty years from the first settlement to the Revolution, the English rules of law governed all these transactions\u2026<\/em><\/p>\n\n\n\n

In this time-tested fashion, a mortgage borrower pledges the home as loan collateral. Then, the borrower repays the lender over time until the final mortgage payoff<\/a>.<\/p>\n\n\n\n\n\n\n\n

A Contract Between Lender and Borrower<\/h2>\n\n\n\n

The mortgage lender evaluates a loan applicant\u2019s financial activities, debt, and buying power. If the lender approves the application, the borrower gets a specific amount of money for a home purchase. To keep the lender\u2019s risk in check, the home buyer makes a down payment, and in some cases pays private mortgage insurance<\/a>.<\/p>\n\n\n\n

Along with a loan approval comes the lender\u2019s loan commitment. This details (among other things) the amount of loan principal and interest to be paid per month, the interest rate, and the term of the loan.<\/p>\n\n\n\n

Once the applicant accepts the loan commitment as written, a binding contract exists. The borrower has entered into a contract to pay off the loan through monthly installments, usually over 15 or 30 years. Each payment includes a part of the loan\u2019s principle amount, plus interest.<\/p>\n\n\n\n

\u261b<\/em> To ensure that the homeowner keeps up with required taxes and insurance, an <\/em><\/strong>escrow account<\/em><\/strong><\/a> gets funded by part of the borrower\u2019s mortgage payments. The mortgage servicer manages this account, making tax and insurance payments for the borrower. An escrow account is required when home buyers put less than 20% down on a home.<\/em><\/strong><\/p>\n\n\n\n

If, at any point, mortgage borrowers don\u2019t uphold their side of the contractual agreement, then what? Consequences depend on the contract. And a properly written contract is backed up with the authority of state law.<\/p>\n\n\n\n

The Lender’s Rights<\/h2>\n\n\n\n

The lender holds legal rights in a home and its title as long as there is any remaining mortgage for the borrower to pay. When all funds are repaid, the lender returns the mortgage note (example: Pennsylvania mortgage note<\/a>) to the borrower. This means the lien comes off the title and the deed is free and clear \u2014 no longer conditioned on a mortgage repayment. <\/p>\n\n\n\n

Before that final payoff, a borrower who fails to perform according to the provisions of the mortgage contract is in default<\/em>. Default might result from missing a monthly payment; a lapse in homeowner\u2019s or condo owner\u2019s insurance policy; letting the property fall into disrepair; or not paying the property taxes.<\/p>\n\n\n\n

Usually, a quick call to the mortgage servicer can rectify an accidental lapse. But if the borrower neglects the matter, the lender has powerful rights. Because a mortgage is a secured loan, the lender can take the home to make itself whole. That is, the lender can foreclose the property, sell the home, and recover the outstanding debt.<\/p>\n\n\n\n

That\u2019s a harsh consequence, but it\u2019s part of the contract the borrower signed.<\/p>\n\n\n\n

\u261b<\/em> In the standard mortgage, the lender can take the title from the borrower only after a default. But knowledge of state law comes in handy \u2014 because this point differs in states using deeds of trust and <\/em><\/strong>deed of reconveyance<\/em><\/strong><\/a> instruments.<\/em><\/strong><\/p>\n\n\n\n

Another way the contract could be breached is by the borrower transferring an ownership interest to another party. That action could speed up the loan due date, through a due on sale <\/em>clause.<\/p>\n\n\n\n

The Borrower\u2019s Rights<\/h2>\n\n\n\n
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Using an acceleration clause<\/em> in the contract, a lender can demand, in certain situations, that the defaulting borrower pay the whole debt at once. To support the borrower\u2019s rights, states set forth limits on acceleration clauses. So, a mortgage company might need to accept late payments or modify the contract to help avert foreclosure.  <\/p>\n\n\n\n

In 1982, Congress passed the Garn-St. Germain Depository Institutions Act. It addresses acceleration clauses. It deals with the due-on-sale clauses that give lenders the option to accelerate the due date for the borrower\u2019s remaining balance \u201cif all or any part of the property, or an interest therein, securing the real property loan is sold or transferred without the lender\u2019s prior written consent.\u201d<\/p>\n\n\n\n

The borrower may be able to keep the loan intact by taking certain actions with the lender\u2019s consent<\/em>. When a homeowner would like to transfer a claim or interest in the mortgaged real estate to another party, it\u2019s up to the lender to consent \u2014 which might involve modifying the loan\u2019s terms and conditions \u2014 or to demand a mortgage payoff. It\u2019s typically in both parties\u2019 best interest to save the loan.<\/p>\n\n\n\n

The federal law also directs mortgage lenders to warn borrowers before they accelerate the debt. Advance notification gives borrowers a chance to cure <\/em>their breach of contract. Under longstanding legal principles dating back centuries, a borrower should get a reasonable time to pay before foreclosure becomes absolute.<\/p>\n\n\n\n

The Garn-St Germain Act also establishes exceptions to acceleration clauses. The borrower may, for example, transfer an interest in the property with a short-term lease, or to a family member, or to a co-owner with survivorship rights<\/a>, or in a few other situations listed in the law.<\/p>\n\n\n\n

Other Legal Matters <\/h2>\n\n\n\n

Banks, credit unions, government-sponsored entities, or individual people all issue mortgages. (Sometimes individuals offer each other financing, bypassing institutional lenders, by way of the contract for deed<\/em><\/a>.)   <\/p>\n\n\n\n

Plenty of contract questions can arise between the lender and the borrower. Sometimes, these involve unfair and illegal dealings<\/a> between the parties. Here are some prominent examples of legal issues between borrowers and lenders:<\/p>\n\n\n\n