The person or company that holds the mortgage ultimately has all the power when it comes to your property. As long as you pay as agreed, this won't be an issue. But fall too far behind and the mortgage holder has the legal right to foreclose and seize the property.
The Mortgage Holder
A mortgage holder is an individual or business, typically a bank or mortgage company, who has lent you money using your home as collateral. The mortgage holder does not own the home, you are the owner of record. The mortgage holder is noted on the property record as having an interest in your home up to the amount of the loan in question. While the mortgage holder does not own your home, it can take possession if you fail to repay your obligation.
A mortgage is consummated in a contract known as a Promissory Note. The note is made between you, as the property owner and the mortgage holder as the lender. The note details the amount of the loan, the interest rate and the terms of repayment. It also details the situations under which the mortgage holder can declare a default, which means you have not abided by the terms of your contract. The most common event of default is non-payment.
The Mortgage Lien
When you enter into a promissory note with the mortgage holder, it files a lien, in the form of a mortgage document, with the county clerk. The mortgage recites the terms of the note and describes the property. Liens take priority in the order that they’re filed. So, a mortgage holder who filed a lien in 2006 has priority rights over a mortgage filed in 2012. The exception to this rule is a tax lien where the municipality can file a lien for unpaid taxes and have first rights to the property.
If you don’t pay as agreed under the terms of the promissory note, the mortgage holder can foreclose and take possession of your property. After a period of non-payment, usually three to six months, it will send a notice of default in addition to reporting the delinquency to the major credit bureaus. The notice gives you a time frame, which varies by lender, to bring the loan current or set up a plan with the collections department. If you fail to do so, the mortgage holder will place the property up for auction at a sheriff’s sale. It will bid your property out starting at the outstanding balance of the mortgage. If the mortgage holder can’t recoup the loan amount, the title will transfer to it, making your house the mortgage holder’s real estate owned, or REO.
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