A mortgage is an instrument giving an interest in real estate from one person, the “mortgagor,” to another person, the “mortgagee,” to secure a debt or liability. Depending upon the laws of the particular state, a mortgage may create a lien or it may actually transfer title to the mortgagee who holds it in trust pending payment of the debt or obligation.
In the sale of a property, the mortgagee (lender) will have any debts they are holding be paid first before any proceeds of the sale go to the mortgagor, who is usually the home owner. To make sure this transaction goes smoothly and all parties to the transaction are paid, an escrow agent will handle the funds for the buyer to make sure all debts, liens, and obligations of the property are paid before the seller receives their funds and the title of the property is transferred.
Mortgages may contain various clauses specifying the rights and obligations of the parties. The parties may agree upon the terms as they wish so long as those terms do not violate state law. The mortgage must be in writing and must be signed. At the very minimum, the mortgage must contain the names and addresses of the parties and of the person who prepared it, a description of the real estate subject to the mortgage, the amount of the debt secured by the mortgage, and the due date. Additional provisions often seen in mortgages include: representations and warranties, provisions for payment of taxes, maintaining insurance on the real estate, specification when default occurs, acceleration clauses, foreclosure, redemption, attorney’s fees, and due-on sale clauses. Please see specific state for details and/or differences.
