The truth about mortgages, construction loans and foreclosures | Finance

By RickGomez
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Word Count: 431

While mortgages are the most common way of buying a home, it is remarkable how few people actually understand what a mortgage is. A common misconception is that a Mortgage is a Home Loan but this is false and people need to be educated about the fact that it is not a loan at all. In fact a mortgage is like a contract whereby the person buying the property (mortgagor) arranges finance to cover the cost from a lender (mortgagee) and the property is used as security against the debt until it is fully repaid. This is just a simple way to ensure the lender is not put at risk financially by the transaction.

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. To help understand how this works, some important information is discussed here. Being the financier, the mortgagee is the person who lends funds to the mortgagor or borrower. A lien is a means by which the mortgagor can purchase a home but it is the mortgagee that retains legal ownership until the arrangement between them has been completed (the debt is paid off).

This system works so successfully because the risk of loss on the part of the mortgagee is all but eliminated as they have legal possession of the property until the debt is completely repaid. This lien is recorded within public records likely to be found at a county courthouse or similar establishment. While the property is owned now by the mortgagor, the lien cannot be reversed until the amount specified in the debt is paid off. Even if your property is mortgaged, you still own the property wholly and completely and nobody else, not even the mortgagee has title to the property.

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.

This is done in order for it to be considered legal; this type of foreclosure is referred to as a judicial foreclosure. Obviously there is much more to the subject than this, but these are the basic foundations upon which the mortgaging system has been constructed. 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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