The article concerns the question – What Are The Possible Flaws Of A Mortgage Contract? Mortgage is a contract where one has to offer a property as a security for the loan previously received or applied for. Properties that can be offered as security may be a real property, and in such case, the contract is called as a real property mortgage or a personal property under a chattel mortgage contract.
This is the usual remedy of the creditor to be secured of the loan obtained by the debtor. If the debtor failed to pay the principal debt, the creditor can go after the properties by executing the mortgage contract. The creditor can sell the properties of the debtor-mortgagor under a foreclosure or auction sale and apply the proceeds of the sale to the amount owed by the debtor with the corresponding interest and the cost or expenses of the foreclosure sale. If there is any excess on the sale, the creditor shall give it to the debtor-mortgagor.
Mortgage contract seems to be a perfect security to the principal loan. It should be. This is precisely the reason why this special type of contracts is made. However, some flaws should be avoided when one is to execute it. Below are some of those possible flaws:
1. When the property is already sold and the title is about to be transferred, the debtor might object on it saying that the sale was not valid since what has been executed is not a sale but a mere equitable mortgage. In equitable mortgage, it requires court’s intervention before the property can be sold. It does not fit the legal definition of mortgage but it is considered as a mortgage under equity because the transaction money is lent and the property is used as security.
2. The debtor-mortgagor must be aware that the creditor-mortgagee cannot own the property he offered as security directly or automatically upon the failure to pay the principal amount of loan. If the creditor automatically appropriates the property in his or her favor, it is not valid. The law does not allow it. Some creditors use this scheme and it provides a terrible idea in a mortgage contract.
3. Another flaw could be the time of redemption of the foreclosed property. A problem may arise when upon a foreclosure sale the highest bidder or the awarded winner of sale would cause the registration of the property under his or her name and while on the process, the debtor paid the creditor and the latter accepts the payment. It may create a problem between the awarded winner of foreclosure sale and the debtor-mortgagor. One should clearly know the rules about right of redemption before entering the mortgage contract.
4. Mortgage of a property is considered as an act of strict dominion over the property. Since it is such in character that one might be able to lose the property on the process, the consent of the owner must be obtained. It could be a problem in a mortgage contract where the debtor have used properties not his or her own as security yet the creditor accepts it. If the true owner comes out in the open to claim the property, the creditor will leave no option but to establish the claim in the court making it more expensive to acquire a security of a debt.