Do You Know What a Mortgage Really Is?

Originally published in the Cedar Street Times
May 6, 2015
You commonly hear people say things like, “I have to pay my mortgage,” or “When is my mortgage due?”  Technically, this is incorrect.  If you were back in grammar school, your teacher would explain that you are using an incorrect part of speech. A mortgage is not a noun; it is a verb.
Mortgage means “to pledge.”  It is the action you take when you pledge the house as collateral when you give the bank a note with the promise to pay them back.  So the bank says, “Hey, if you want to buy this house (or borrow money against a house you already own), we will give you the money if you mortgage the house by giving us legal title to the house until we are paid back, and giving us a note that promises repayment.  If you default on the loan we can sell the house to settle the debt.”  The customer is the mortgagor.  The mortgagee would be the lender.
After the note is paid in full, then the mortgagor reconveys legal title to the property to the mortgagee.   Even though the lender has legal title until paid in full, the mortgagor still retains equitable title.  Equitable title is basically the right to use and enjoy the property.
In about  20 states (including California) we technically do not use mortgages, but instead use deeds of trusts.  This works in a similar fashion except that instead of the mortgagee holding legal title until the debt is paid, a third party (such as an escrow company) holds the legal title until the debt is paid in full.  A deed of trust is an advantage to the lender, as the lender does not have to sue in public court in case of default.  Instead they can do a nonjudicial foreclosure much faster.
So, in reference to the beginning of our article, to be technically correct, you would have to say “I’ve got to pay the note for the house I mortgaged,” or in California, ” I’ve got to pay the note for the house on which there is a deed of trust.”

Prior articles are republished on my website at .

Travis H. Long, CPA, Inc. is located at 706-B Forest Avenue, PG, 93950 and focuses on trust, estate, individual, and business taxation. Travis can be reached at 831-333-1041. This article is for educational purposes.  Although believed to be accurate in most situations, it does not constitute professional advice or establish a client relationship.

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