Most buyers purchase their first home through amortization. Most amortized properties are bank financed. The real estate transaction that binds the relationship between the financial institution and the buyer is something we call Mortgage.
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Mortgage as an experience, had been very pleasant for those buyers who sustained their capacity-to-pay all throughout the loan period. For some few who were not able to sustain their source of income, it had been a struggle that ended up into foreclosure.
When a buyer is no longer able to fulfill the obligation to pay his loan in a mortgage contract, the two devastating consequences are: (1) decline of personal credit rating that will affect future loan credibility, and (2) ejection from own home after a successful foreclosure proceeding in court.
The boomerang effects of mortgage are the reasons why many potential buyers are not comfortable with loaning, but their fighting spirit and dream to own a house is still there burning inside their hearts. Many dream everyday for cash to rain from heaven in huge amount so they can buy a home with outright cash.
This blog is definitely not to sow fear about mortgage that will discourage people to avail of loan for real estate acquisition purposes. The objective of this blog is to provide light in all areas of the long tunnel of a mortgage deal. This blog will provide comprehensive information about mortgage based on frequently asked questions (FAQ) of many buyers in the past. I believe that knowledge is the foundation of intelligent-buying, and providing this information is my duty as a buyer's agent to ensure that my clients will experience a smooth sailing ride just in case they opt to a bank financed real estate purchasing.
Mortgage, as a study, is a combination of mathematics and law - the two most dreaded field of studies. Despite hundreds of books written in layman's terms about mortgage, many still believe that mortgage is very difficult to understand, especially if learning process is through self-study.
On self-help medication labels, you can read: "If symptoms persist, consult your doctor".
When it comes to Bank Financing of Real Estate Purchase, I would say it in Latin: "Cogita ante salis"- Think before you leap, or look before you leap. To avoid regrets, do your first-time home buying through an Exclusive Buyer Agent (EBA).
Defining the Mortgage players
Mortgagor - the property owner who used his property as collateral of a loan.
Mortgagee - the financial institution who lend money to the Mortgagor.
Guarantor - the person who promised to shoulder the loan obligation in case the mortgagor fails to fulfill his obligation to pay.
What is Real Estate Mortgage?
A real estate mortgage may be defined as an accessory contract whereby the debtor guarantees the performances of the principal obligation by subjecting real property or real rights as security in case of non-performance of such obligation within the period agreed upon.
What are the characteristics of real estate mortgage?
- § It is a real right. The mortgagee has the right to have the property sold to satisfy his claim in case the obligation is not paid.
- § It is an accessory contract. It cannot exist without a principal obligation. The mortgage property serves as a security to the satisfaction of an obligation.
- § It is indivisible. It creates a lien on the whole or all of the properties mortgaged and continues as such even if the obligation is partially or almost paid.
- § It is a real property. It is a real right and considered as an immovable property.
- § It is inseparable. A mortgage always refers to the property even if the ownership was transferred by the mortgagor to another party.
- § It is characterized by publicity. It must be registered with the Register of Deed to be validly constituted.
- § It is a limitation of ownership. It gives to the mortgagee the right to have the property sold, however, the mortgagor retains the right to sell the property.
- § It is a lien. A mortgage is only a lien upon the property. The title to the property together with the right of possession remains with the owner until foreclosed.
- § The property cannot be appropriated. The mortgagee cannot appropriate to himself the mortgaged property. Any stipulation that the mortgages can do is against public policy and is contrary to law.
- § It can secure all kinds of obligation. Mortgage may secure all kinds of obligations.
What are the essential requisites of a Contract of Real Estate Mortgage?
- § That is guarantees the fulfillment of a principal obligation.
- § That the mortgagor must be the absolute owner of the property mortgaged.
- § That the mortgagor is the absolute owner of the property, if not, he must be, legally authorized.
- § That it must be registered with the Register of Deeds.
- § That when the obligation becomes due, the property mortgaged may not be appropriated by the creditor, but must be sold in accordance with the procedure prescribed by law
What are the most common kinds of mortgage?
- § Conventional or voluntary mortgage
- § Legal mortgage
- § Judicial mortgage
- § Equitable mortgage
What is conventional or voluntary mortgage?
Conventional or voluntary mortgage is one which is agreed to by the parties or constitute by the will of the owner of the property on which it is created.
What is legal mortgage?
A legal mortgage is one created operation of law, wherein the creditor is given a mortgage on the property of his debtor, without the necessity of the parties actually stipulating on it. It may also be defined as one required by express provisions of law to be executed in favor of certain persons to secure the performance of the principal obligation.
For instance, claims of laborers engaged in construction of a building are to be considered as mortgages upon said building by operations of Art.2243 in relation to Art.2242 of the NCC.
What is judicial mortgage?
Judicial mortgage is one resulting from a judgment. For instance a plain deed of sale may be declared to be a mortgage by the court.
What is equitable mortgage?
In equitable mortgage is one that is not a mortgage in form but in substance a mere security for a debt or obligation. This commonly occurs in "pacto de retro."
When is a contract presumed to be an equitable mortgage?
- § The price of sale, with right to repurchase, is unusually inadequate;
- § The vendor remains in possession as lessee or otherwise;
- § Upon or after the expiration of the right to repurchase, another instrument extending the period of redemption or granting a new period is executed;
- § The purchaser retains for himself a part of the purchase price;
- § The vendor binds himself to pay the taxes of the thing sold; and
- § In any other case where it may fairly be inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation.
What are the subject matters of the real estate mortgage?
- § Immovables
- § Alienable real rights imposed by law on immovables, such as usufruct, ace right, right of redemption
- § Real properties and real rights, such as the right in voluntary mortgage
What are the similarities between mortgage and pledge?
- § Both subjects the property to the fulfillment of the obligation as security
- § Both guarantee the performance of a principal obligation;
- § Both are indivisible as securities;
- § In both cases, the creditor cannot appropriate the property to himself;
- § When the obligation is not paid, the property must be sold and the proceeds applied to the payment of the debt.
What are the differences between mortgage and pledge?
- Mortgage is constituted on real property, pledge is on personal property.
- Mortgagor retains the possession and use of the property, while the thing pledge must be delivered to the creditor.
- Mortgages must be registered, pledge may be oral.
- In mortgage, deficiency judgment may occur, while in pledge, the thing pledged is sufficient to pay the debt.
- The mortgage, if foreclosed, mortgagor has equity of redemption, while in pledge, no redemption after closure sale.
What is the difference between mortgage and antichresis?
- § As to possession: In mortgage, debtor surrenders possession of the property to the creditor, while in antichresis, mortgagor retains possession of the property.
- § As to fruits: In mortgage, the creditor does not receive the fruits, while in antichresis, the creditor generally receives fruits.
- § As to taxes: In mortgage, debtor-mortgagor usually pays the taxes, creditor is obliged to pay the taxes.
What is the difference between mortgage and "pacto de retro?"
- § As to nature: Mortgage is an accessory contract, while pacto de retro is principal and independent contract
- § As to title: In mortgage, title is retained by the mortgagor, while in pacto de retro, title passes to the vendee.
- § As to possession: In mortgage, possession is retained by the mortgagor, while in pacto de retro, possession is delivered to the vendee.
- § As right to appropriate: In mortgage, creditor cannot appropriate property himself, while in pacto de retro, property may dispose of the same as absolute owner.
- § As to pay of taxes: Mortgagor is obliged to pay taxes, while in pacto de retro, the vendee is obliged to pay taxes.
- § As to loss of interest in the property: Mortgagor does not loss his interest in the property if he fails to pay. It is the duty of the mortgagee to foreclose the mortgage and before foreclosure, the mortgagor may still redeem the property. In pacto de retro, if the seller does not repurchase the property on the day named in the contract, he loses all his interest therein.
- § As to retention of money in consideration: Mortgagee may retain part of the money loaned to be applied to payment of interest in advance, while in pacto de retro, purchaser cannot retain for himself any part of the purchase price.
- § As to extension of period of redemption: In mortgage, extension of the period of redemption may be granted any number of times and obligation is indivisible. In pacto de retro, extension of the period of redemption is not allowed but partial redemption permissible.
- § As to object: In mortgage, only immovable properties are allowed, while in pacto de retro, the object may either movable or immovable.
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