SALE BY MORTGAGEE OR MORTGAGOR OF REAL ESTATE.—Either the mortgagee or the mortgagor may assign his interest. The mortgagee in assigning his interest is in legal contemplation doing two things: (1) assigning the debt; (2) assigning the title or lien which he holds on the mortgagor's real estate as security for the debt. As to the assignment of the debt, the matter is governed by the same principles as govern the assignment of choses in action generally. That is, if the mortgaged debt is represented by a negotiable instrument, the instrument may be negotiated to the purchaser in the ordinary way, and with the ordinary effects of such instruments. If the mortgaged debt is not represented by a negotiable instrument, the assignment of the debt is an assignment of a chose in action. Where the common law view of mortgage still prevails, that the mortgagee has the legal title, he can only transfer it to an assignee by a deed executed with the same formalities necessary for the transfers of real estate. As, however, the law recognizes that it is the debt which is the essential feature of the relation between mortgagor and mortgagee, and that the mortgaged estate is held merely as security for a debt, a valid assignment of the debt is held to make the assignee equitably entitled to the mortgaged property as security. And, in effect, one who obtains the mortgage debt will secure the benefit of the mortgaged property even though the local law regards a mortgagee as having the legal title. Where the mortgagee is regarded as having merely a lien, the assignment of the debt involves a transfer of the lien.
INCIDENTS TO MORTGAGE.—If the mortgagor wishes to convey his interest, he transfers the estate by deed exactly as if it were unmortgaged, except that the conveyance is stated to be subject to a specified mortgage, and it is sometimes added "which the grantee assumes and agrees to pay." It is desirable for the seller that the grantee shall assume and agree to pay the mortgage while it is desirable for the buyer that he shall buy the premises merely subject to the mortgage without assuming it. The difference between the two transactions is this: In either event the grantee receives the premises burdened by a mortgage, the amount of which will be deducted from the consideration paid as the agreed value of the premises. In either event, if the debt is unpaid, the mortgagee will foreclose and the grantee will lose the premises. In order to save the premises, the grantee will have to pay the mortgage.
ASSUMPTION OF MORTGAGE.—The distinction is only seriously important when the mortgaged premises are worth less than the amount of the mortgage. In that event the mortgagee will be entitled to a deficiency judgment against the mortgagor. The mortgagor was the original debtor and cannot escape from his obligation to the mortgagee without the latter's assent. If the mortgagor is forced to pay, he cannot recover the amount from his grantee unless the latter assumed and agreed to pay the mortgage. If, however, the grantee did make such assumption, he will ultimately have to pay the deficiency. If the mortgagee, without foreclosing the property, should sue the mortgagor directly on the debt, the latter would be compelled to pay. Even if the sale to the mortgagor's grantee had been made merely subject to the mortgage, the mortgagor on paying the debt would be subrogated to the mortgage and would himself be enabled to foreclose the property. But if the property failed to realize enough to reimburse him for the payment of the debt, he would lose this deficiency unless the grantee had assumed and agreed to pay the mortgage. Whether the mortgagee may sue directly a grantee of mortgaged premises who has assumed and agreed to pay the mortgage, is a question which has been much litigated; but it is now held almost everywhere that the mortgagee may do so. Sometimes a succession of grantees, each in turn on buying the premises, assumes and agrees to pay a certain mortgage. The mortgagee, in such a case, is generally allowed to recover from any one of these grantees so far as is necessary to satisfy his claim; but the ultimate liability will rest upon the last purchaser who has assumed the debt. As against a grantee who has not assumed the debt, the mortgagee has no rights. He can deprive such a purchaser of his land, so far as is necessary to collect the debt, but he cannot hold him personally liable.
FORECLOSURE OF REAL ESTATE MORTGAGES.—According to the original theory of the law, the mortgagee became the absolute owner of the mortgaged premises by the failure of the mortgagor to pay the debt when due, and by the foreclosure or termination of the mortgagor's right of redemption. Foreclosure of this character is still possible in a few States, but in most States it has been wholly abolished, and everywhere the ordinary method of foreclosure is by sale of the mortgaged property. Frequently the sale is made by virtue of an authority or power of sale given in the mortgage itself, but sometimes it is made under authority of a decree of court in foreclosure proceedings. Where a mortgage contains a power to the mortgagee to sell on default of the mortgagor, he is acting not simply on his own behalf but as agent for the mortgagor in transferring title to the property. The proceeds will be applied first to the payment of the debt with interest and the expenses of the sale. Any surplus will be held by the mortgagee in trust for the mortgagor and must be paid over to the latter. The situation is entirely analogous to that created by a collateral note where stock or other personal property is transferred as collateral to secure a debt. The statutes of all States contain regulations in regard to the foreclosure of mortgages, which must be observed. They are aimed generally to protect the mortgagor from forfeiture of his property to any greater extent than is necessary to insure the payment of the mortgage debt. In any case of foreclosure the local statute and practice must be consulted.
DEEDS OF TRUST.—In some States what are called deeds of trust have been largely substituted for mortgages. The temptation to make such a substitution is greatest in jurisdictions which refuse to recognize the mortgagee as the legal owner of the premises. If the law denies the mortgagee this recognition, he can, by insisting, as a condition of his loan, that the premises shall be conveyed to a third person as trustee, achieve the result that the mortgagor at least is no longer the legal owner of the premises. Essentially the situation is the same under a deed of trust as under a common law mortgage. In both cases the legal title is held merely to secure the debt, and the court will secure to the debtor all the value of the property which can be realized from its sale over and above the amount of the debt. If the debt is paid of course the debtor is entitled to the return of the security whether it is real estate or personalty, and whether held directly by the creditor or by a third person as trustee.
THE TORRENS LAW.—The Torrens system of registration of land titles received its name from Sir Robert Torrens who drew the first Torrens law enacted in South Australia in 1858. The practice of searching titles has gone through this development. In country districts the person purchasing real estate frequently accepted the grantor's deed without any search of the title. Of course, if there were judgments against the grantor, or other claims against the real property, the purchaser or the grantee takes the property subject to these claims. Ordinarily, however, the careful purchaser employs a lawyer to make a search of the title before he accepts it and pays the purchase price. In New York City to-day, and in some of the other large cities of the country, most of the title searching has passed out of the hands of the lawyers into the hands of the title companies. The title company makes the search now, the same as the lawyer formerly did, with an added advantage. Suppose I am to buy Blackacre, and employ attorney Blackstone to search the title. He reports it as being free and clear. I take possession and pay the purchase price. Six months later the wife of the grantor appears on the scene. When the grantor conveyed, he stated in the deed that he was single. The wife establishes the validity of her marriage, and her husband's, my grantor's, death. She is, of course, entitled to dower. I am obliged to make some kind of settlement with her, and there is no way, probably, by which I can hold my lawyer for failing to find that the grantor was married, when he made the search for me. If the title to my property had been searched for me by a title company, it would have issued a title insurance policy in my name which would have protected me, in this instance, and I would have been reimbursed by the title company for the loss which I sustained in having to pay the dower claim of my grantor's wife.
ECONOMY OF TITLE SEARCHES.—Economically, the title company is a big step in advance of the former practice of having lawyers make a search. The title company can do it much cheaper. If Blackacre was sold, when lawyers alone were making searches, probably a different lawyer would be employed at each sale, and he would make a search back to the earliest deed. After a title company has made its search, the result is in its records and the next time it is on the same piece of property, the search would simply be what is called a continuation, which would carry the search from the last time the company was on the title down to the present time. This enables the title company to make its fee more reasonable than the lawyer, and we can now secure a title company's search and insurance policy frequently for less than formerly was paid to the lawyer for the search alone.
ESCHEAT.—However, the policies issued by the title companies are not absolutely satisfactory, and the next, and perhaps final, step is for the State to come in and guarantee the title. This is perfectly logical. The ownership of all land is in the State, theoretically, the same as under the English common law. The King, in those days, owned all the land. This is more than theory, even to-day. If a man dies, leaving no heirs and no will, his real property escheats to the State, this being based simply on the theory that the property goes back to its original owner, the State. If this is true, why should not the State insure the title? This is the theory of the Torrens' system.
EFFECT OF TORRENS LAW.—The first Torrens law, enacted in this country, was in Illinois, and similar acts have been passed in a number of the States, including New York. When such laws are on the statute books, generally the business of a title company will be legislated out of existence. For that reason, opposition to the passage of such laws has developed in some States. Perhaps the next fifty years may see them generally adopted throughout the country.