What is a Mortgage?

What is a mortgage?

2 Answers

A **mortgage **is a security instrument, whereby real property is pledged as collateral for a loan.  In other words, when you borrow money, you sign a Promissory Note (which is your personal promise to repay the loan - if you don't pay, you can be sued for the money, and a judgment taken against you).  If you also sign a Mortgage, you are saying to your lender, "if I don't pay you in accordance with the Note, then, instead of suing me personally for the money - which I obviously don't have - sue to get back this real estate, which you can then sell to satisfy the Note". 

It is important to realize that in most states, if the lender does not get enough money from the sale of the real estate pledged for the loan, then the lender can obtain a deficiency judgment - meaning, they can get a judgment against you for the difference between what is owed under the Note and the value of the real property.

A **mortgage **is a written instrument that creates a lien upon real estate as security or collateral for the repayment of a specified debt. An instrument is a written legal document created to define the rights and liabilities of the parties involved.

A mortgage differs from a deed of trust, because there are only two parties involved in a mortgage. A deed of trust is also an instrument however it includes a third party (known as a trustee) in which legal title of the real estate is vested to secure the repayment of the loan.

Despite this difference a mortgage and deed of trust are considered similiar instruments, both designed to meet the same demand. Depending on which state you reside in usually determines which type of instrument is used when securing financing.