Mortgage loans are characterized by the presence of collateral in the form of real estate. This type of transaction requires official confirmation using a special document, because a real estate loan is a loan of a fairly large amount of cash. In addition, we are talking about a certain collateral, the role of which is the acquired house, apartment or other housing.
In this regard, Russian banks have introduced the practice of mortgaging along with a mortgage agreement.
What is a mortgage?
A mortgage is a security that regulates the relationship between the lender and the borrower.
Thanks to her, the owner becomes the owner of two rights at once:
- The right to fulfill monetary obligations on a mortgage loan without providing other evidence for its existence.
- The right to use property registered under a mortgage as a pledge.
More precisely determine what a mortgage is and how it differs from a mortgage agreement, you can according to the following table:
Conditions | Mortgage | Mortgage agreement |
Status | A mortgage is a security that can be a participant in operations in the bank and between banks | Legally binding official document |
Ability to make changes | There is no possibility, for this it is necessary to draw up a new mortgage | Perhaps, but if both parties agree |
Who signs | Borrower and Pledger | Lender and borrower |
Place of registration | Registration service | Notary |
Collateral Information | The collateral object is described in detail | Collateral only mentioned |
Content | Guaranteed performance of obligations of the parties | Description of the legal relationship for the issuance and repayment of a housing loan |
General information
A mortgage is a debt security, the action of which ends only after the full repayment of all obligations of the borrower to the creditor. Until its validity has expired, the owner bank may repledge or sell the mortgage to other financial and credit organizations. Of course, only with the personal consent of the borrower. However, this does not have any significant effect on the security itself: the terms of the mortgage agreement, as well as the conditions of the mortgage, are unchanged.
Russian lending practice does not provide for the mandatory execution of this paper. Large banks, for example, do not consider it necessary to oblige the borrower to sign a mortgage, because there are impressive financial assets in their reserves, that is, they do not risk losing any significant amount for themselves. But not so large participants in the credit and financial market insist on issuing a mortgage in order to protect themselves.
An important feature of a mortgage is that its conditions are superior in priority to a mortgage agreement. It turns out that in case of non-compliance, the obligations will be fulfilled according to the provisions of the mortgage.
A mortgage loan agreement is the main document of this transaction, it certifies the mortgage, and a mortgage is its guarantee. The original mortgage remains in custody of the bank that provided the loan, the borrower receives a copy certified by a notary.
A mortgage is a security whose registered ownership does not allow a financial institution to transfer it to third parties without the written permission of the borrower.
The essence of mortgages
A mortgage is a link between the real estate and securities markets. The essence of mortgages is refinancing, that is, mortgage debt can be sold or mortgaged. The Mortgage Institute was introduced recently, which undoubtedly means progress in the development of the debt securities market. Thus, banks will be able to sell debt in the secondary market, thereby providing themselves with an extensive base of cash resources for long-term lending.
In the mortgage, the most important thing is the massive lending by banks of buildings under construction and finished. Long-term housing loans cannot be based solely on deposits and other accounts of depositors. Massive and long-term lending to construction and the purchase of private real estate require refinancing opportunities, including in the stock market. World financial history has proved the impossibility of a normal development of the housing loan market without mortgages.
Conditions for issuing a mortgage
This security may be issued subject to three conditions:
- the main liability is monetary;
- when concluding a mortgage agreement, the amount of debt is indicated according to it or the criteria by which it can be determined;
- the mortgage agreement must contain a clause on the issue of the mortgage.
This does not mean that the mortgage or the main contract is losing its force. They both continue to be valid. But it must be remembered that a mortgage is a security, the obligations of which are secured by a pledge. The holder may collect the subject of the mortgage loan or obtain performance under the main contract precisely under the mortgage, and not on the basis of the mortgage or main contract. In addition, one of the features of a mortgage is the obligatory state registration of this security.
The mortgagor issues the document. A mortgage is a pledge agreement, which is issued in a single copy, in writing, on a special standard form. State registration of a mortgage assumes the existence of an individual registration number and seal, without which this security is considered invalid.
Categories of objects
A mortgage is a security, the security of which may be one of the objects of the following categories:
- apartments, houses and parts thereof;
- unfinished objects;
- land;
- garages, garden houses, cottages and other buildings for consumer use;
- inland navigation vessels, ships and aircraft, space objects.
A mortgage cannot be executed if the subject of the contract is an immovable object with specific properties, such as:
- plot of land;
- enterprise as a single and indivisible property complex;
- forest, etc.
In the mortgage agreement, the right to lease may be indicated as an object.
What is a mortgage on the securities market
A mortgage is a securely secured debt obligation. A company that owns a portfolio of such mortgages has the right to start issuing its own bonds to attract additional finance. Their repayment is due to the payment of interest on mortgages owned by the company that issued these bonds.
A mortgage in the securities market is a document that meets a number of requirements. In particular, it must be literal, that is, certain details must be present on paper. The presence of not all of them automatically nullifies its value.
In addition to the points and data established by law, the mortgage may contain information indicated by the mortgagee and the mortgagor. For example, it may be certain sanctions applicable to the borrower in case of late payment of the next payment, or some additional features involving the preservation of the mortgaged property. The Bank has the right to independently set forth these additional conditions without the participation of the debtor.
Mortgage transfer and its legal consequences
The transfer of a mortgage in the legal sense is divided into two stages:
- execution of endorsement in favor of an endorser (any third party);
- actual transfer of the original.
The endorser (the one who transfers the security) is obliged to provide the debtor with a written notice of the fact of transfer of the mortgage. Having received the document, the endorser becomes the owner of all the rights of the mortgagee under the mortgage and main agreements. The endorser is responsible to him for the degree of reliability of the information contained in the transferred security. In addition, the transfer of a mortgage means confirmation by an endorser of the conscientious fulfillment of all obligations of the debtor under the contract. After the transfer of the paper, the mortgagor declines all responsibility to the endorser for the non-fulfillment of any obligations by the debtor.
However, there is a reservation in the Law "On Mortgage", providing for the designation of conditions for liability. Thus, the mortgage buyer increases their own comfort and security of their investments.
Mortgage Refinancing
The Law "On Mortgage" provides several ways to allow refinancing using mortgages:
- mortgage sale;
- her pledge;
- sale of this document with a prerequisite for its repurchase;
- issue of mortgage securities.
A very important nuance in this matter is that a mortgage can be refinanced only before the debtor fulfills all loan obligations.
Advantages and disadvantages of mortgage securities
The benefits of issuing mortgage bonds and certificates are:
- obtaining by the mortgage market financial resources, allowing to expand the scope of mortgage lending;
- investors receive securities with high returns and guarantees.
The disadvantage of mortgage bonds and certificates for the owner is the ability to repay the loan by the debtor ahead of time. The risk of returning the face value of the certificate is high, as a result of which the owner of the mortgage security will be deprived of long-term profit in the form of interest.