MORTGAGES OF REAL ESTATE
305. Mortgage Defined. By the common law, a mortgage was an absolute deed of conveyance, by the terms of which the debtor was entitled to receive a reconveyance of the property upon payment of the debt described in the mortgage, or upon performing the conditions for which the mortgage was given. For example, A owes B one thousand dollars, A, to secure the debt, gives B an instrument of conveyance of his house and lot, the instrument containing a provision that if A pays B one thousand dollars ($1,000.00) on or before January 1st, 1911, B is to reconvey the house and lot to A. The above represents a mortgage at common law. As explained later, a present day mortgage is somewhat different.
At common law, the creditor had possession of the property from the time the mortgage was given, unless it was expressly agreed that the debtor was to remain in possession. The real purpose of a mortgage is to give security for a debt or obligation. To permit a creditor to keep the mortgaged property upon default of the debtor to pay the debt when due, is unjust in many cases. For example, if A gives a mortgage to B upon property worth one thousand dollars, to secure a debt of three hundred dollars, and A defaults in payment, it is unjust to permit B to keep the property. Courts of equity have for a long time regarded this transaction as a mere security for a debt, and not an absolute transfer of title to property. Courts of equity long ago permitted the debtor to file a petition in a court of equity asking that the property be reconveyed to him upon payment of the debt, and damages due the creditor. Courts of equity recognize this right of the debtor, which is called equity of redemption. At the present time mortgages are, in form, an absolute conveyance of real estate, with a condition that the title is to revest in the debtor, or that the conveyance is to be void and of no effect, if the debtor pays the debt or performs the condition. If the debtor fails to perform this condition at the time stipulated, he is still able to enforce his equity of redemption. This, in effect, makes a mortgage of real estate a mere security for a debt. The creditor is permitted to cut off the debtor's right of redemption by foreclosure, which is discussed under a separate section.
306. Parties to a Mortgage Contract. A mortgage of real estate is a contract. Like any contract, it requires competent parties, a consideration, mutuality, etc. (See Essentials of a Contract, chapter on Contracts.) The party conveying the real estate to another as security for the debt is called the mortgagor, the party to whom the mortgage is given is called the mortgagee.
307. Possession of Mortgaged Property. Originally at common law, the mortgagee was entitled to the possession of the mortgaged premises as soon as the mortgage was given, and before default of the mortgagor to pay the debt described in the mortgage. At the present time, the mortgagor is entitled to possession of the mortgaged premises until after default of payment of the mortgage debt. After default, the mortgagee may take possession of the premises. Some states now provide by statute, that the mortgagor shall have possession of the mortgaged premises until he defaults in payment of the mortgage debt. Independently of such a statute, the mortgagor has the right to possession of the mortgaged premises before default of payment of the mortgage debt. This is by reason of the fact that the law regards the transaction as a security for a debt rather than an absolute transfer of title.
Parties are permitted to enter into any contract they choose so long as the provisions are legal. Parties to a mortgage may stipulate who is to have possession before default or payment on the part of the mortgagor. If it is stipulated that the mortgagee is to have possession, he is entitled to it under the terms of the mortgage contract. If no stipulation is made, the mortgagor impliedly is given the right of possession before default.
308. Deeds as Mortgages. If a deed, absolute on its face, is given by a debtor to a creditor to secure a debt, it will be treated by a court of equity as a mortgage. Equity regards the substance of things rather than the form. (See Courts of Equity under chapter on Courts, Remedies, and Procedure.) Courts of equity were originally created for the purpose of granting justice where the rules of the common law failed. In England, they were called courts of chancery. A judge sits alone as a court of equity, without the aid of a jury. When there is no remedy at law, and a wrong exists, equity affords a remedy. In this country, the same court frequently sits as a court of equity as well as a court of law. In the case of deeds absolute on their face, if it was the intention of the parties that the conveyance was to constitute a security for a debt, rather than a sale, a court of equity will permit the grantor to secure a return of the property upon payment of his debt. Equity looks at the substance of the transaction disregarding the form. If mortgages are not in proper legal form, and either party is not permitted at law to enforce his right, equity will enforce the transaction according to the intention of the parties. Informal or incomplete mortgages are called equitable mortgages.
309. The Debt Secured. A mortgage is a contract, and like any contract, must be supported by a consideration. (See Consideration, chapter on Contracts.) The consideration of a mortgage may be anything of benefit to the one giving the mortgage, or any detriment to the one receiving the mortgage. The consideration of a mortgage ordinarily is an advancement or loan, past or present, made by a mortgagee to the mortgagor. That is, a mortgage is given as security for some debt or obligation in favor of the mortgagee. This debt is usually described in the mortgage as a promissory note. Even though no note has been given, if the amount described in the mortgage as a promissory note is the amount of the debt, or if any debt exists, the mortgage is valid. A mortgage may be given to cover future advances, or for a pre-existing indebtedness. If a mortgage is given as security for a promissory note, it will secure all renewals of the note as well.
310. Essentials of a Mortgage. A mortgage is an instrument for the conveyance of land. By the provisions of the Statute of Frauds, such instruments must be in writing to be enforceable. (See Statute of Frauds, chapter on Contracts.) The states provide by statute that mortgages must be recorded to be effective as against subsequent innocent purchasers, mortgagees or creditors. Mortgages must be in writing for the purpose of recording, as well as to comply with the Statute of Frauds. When a mortgagee takes possession of the mortgaged premises, this is sufficient notice to creditors and subsequent purchasers of his interests. In this event the mortgage need not be reduced to writing nor recorded.
Mortgages are usually written in the form of formal deeds. (See Form of Deeds, chapter on Real Property.) Although it is good business practice to follow these well recognized forms in drawing mortgages, an informal instrument describing the parties and the property mortgaged, and showing an intent to make a mortgage is sufficient. Some states by statute provide a short statutory form. This form may be used, but does not prevent the common law form from being used.