A Mortgage Deed, also known as a Mortgage Agreement, serves as a vital legal document cementing the relationship between a borrower and a lender in the realm of real estate transactions. In this comprehensive guide, we will explore the intricacies of Mortgage Deeds, how they function, their importance, and key distinctions, along with a closer look at their differences from a Deed of Trust.

Table of Contents

• What is a Mortgage Deed?
• Why You Should Use a Mortgage Deed
• Mortgage Deed vs. Deed of Trust: Key Differences
• What is in a Mortgage Deed?
• How to Write a Mortgage Deed
• Frequently Asked Questions
• Mortgage Deed Sample

What is a Mortgage Deed?

A Mortgage Deed is a legally binding document that establishes a lien on a property, acting as collateral for a loan. It outlines the terms and conditions under which the borrower, typically an individual purchasing real estate, agrees to repay the loan provided by the lender, often a bank or financial institution.

How Does a Mortgage Deed Work?

• Conditional Ownership: The borrower grants conditional ownership of the property to the lender until the loan is repaid in full.
• Separation from Loan Agreement: It is distinct from the loan agreement or promissory note, detailing the specific terms and conditions governing the loan.
• Essential Elements: A standard Mortgage Deed includes details about the borrower, lender, principal amount, and a legal description of the property.

Why You Should Use a Mortgage Deed

Utilizing a Mortgage Deed is crucial for several reasons:

• Preventing Misunderstandings: Clearly outlining the loan details prevents potential conflicts between parties involved.
• IRS Compliance: Having a valid and enforceable loan document prevents intra-family loans from being mistakenly classified as gifts, thus avoiding gift taxes.
• Secured Lending: In the absence of a secured loan, lenders face challenges in the event of borrower bankruptcy, unexpected legal issues, or default on payments.

Here is a chart of some of the preventable suffering this document could prevent:

Lender	Borrower
Large sums of borrowed money unpaid	Inability to receive financing
Non-priority debtor	Increased debt on property or house
Expensive lawyer fees to: recover damage to property or house battle alleged ownership pursue debt collection	Expensive lawyer fees to: defend use of property or house obtain the deed to property or a house fight debt collectors
Loss of business relationship or family trust	Loss of business relationship or family trust
Personal safety & well being	Personal safety and well being

The Most Common Mortgage Relationships

While these agreements usually occur between banks and individuals, two individuals, organizations, or entities conducting a business relationship can also use this agreement to document a private mortgage.

Here is a table detailing common borrowers and lenders who might need one:

POSSIBLE LENDER	POSSIBLE BORROWER
Seller of a property or home	Buyer of a property or home
Private investor	Professional ‘flipper’
Private mortgage company	Company looking to purchase an office
Family member Uncle or aunt helping their favorite family member Older wealthier family member divesting estate (i.e. grandparents)	Family member Nephew or niece paying for first home or apartment Younger less wealthy family members in need of financial assistance (i.e. grandchildren)
Sympathetic friend with extra funds (i.e. able to lend but not give money)	Reliable friend needing cash (i.e. for a real estate investment opportunity)

Mortgage Deed vs. Deed of Trust: Key Differences

While both create liens on properties, Mortgage Deeds and Deeds of Trust have notable distinctions:

• Three-Party Involvement: Deeds of Trust involve three parties - borrower, lender, and trustee, while Mortgage Deeds involve only the borrower and lender.
• Foreclosure Procedures: Mortgage Deeds require judicial foreclosure, involving court orders, whereas Deeds of Trust enable non-judicial foreclosure, allowing quicker property possession by the lender.
• Prevalence: Over half of U.S. states prefer or mandate the use of Deeds of Trust, emphasizing the need to understand state-specific property laws.

Judicial vs. Non-Judicial Foreclosure: A Quick Comparison

Understanding the lender's remedies in case of default is crucial:

• Judicial Foreclosure: Involves court proceedings, providing the borrower more time but requiring a court order for property possession.
• Non-Judicial Foreclosure: Allows quicker property possession without a court order, emphasizing the importance of adhering to specific state rules.

What is in a Mortgage Deed?

A well-structured Mortgage Deed should address key components:

1. Parties Involved:
Clearly identify the borrower and lender, ensuring signatures are witnessed and notarized.

2. Property Exchange:
Explicitly grant title to the lender in exchange for the principal plus interest, with the lender gaining legal title until the loan is fully repaid.

3. Termination:
Specify the conditions under which the agreement will terminate, typically upon full loan repayment.

4. Property Details:
Clearly state the property's address and provide a legal description, preventing future disputes.

5. Loan Details:
Clearly outline the principal amount, interest rate, and payment terms, referencing the loan agreement or promissory note.

6. Additional Provisions:
Include details such as assigned rents, covenants, default and acceleration clauses, and rights of the lender.

How to Write a Mortgage Deed

Before you fill out your mortgage deed form, write your state at the top.

Step 1 – Fill In the Effective Date

1. Date of Mortgage Deed. Provide the effective date of the mortgage deed.

Step 2 – Enter Borrower and Lender Details

2. Borrower. Write the full name of the borrower, the party receiving the loan and pledging the property. If there is more than one borrower, provide all borrowers’ names. Write the borrower’s street address.

3. Lender. Write the lender’s full name, the party granting the loan, and receiving a lien on the property. Provide the lender’s street address.

Step 3 – Write Loan Information

4. Guarantor. State any guarantor on the loan agreement or note. If there is a guarantor, provide the person’s full name.

5. Name of Agreement or Note. Provide the full name or title of the agreement or note that details the loan between the borrower and lender. Also, provide the date of the loan agreement or note.

6. Principal Amount. Specify the total principal amount of the loan in U.S. dollars and the interest rate on the loan.

Step 4 – Fill In Property Details

7. Property Address. Enter the street (physical) address of the mortgaged property, pledged as security for the mortgage loan. Include any unit or apartment number, if applicable.

8. Legal Description. Write the legal description of the property. A legal description is a geographical description of the property, commonly identified by a government survey, metes, bounds, or lot and block.

You can find the legal description on the property’s deed or tax assessment or through the county registrar or assessor.

Step 5 – Identify Assigned Rents

9. Assigned Rents. State whether or not the borrower will collect rent on the property.

Step 6 – Enter Acceleration Upon Default

10. Acceleration. Specify the days the borrower can default before the lender can accelerate the loan.

Step 7 – Choose the Power of Sale Option

11. Power of Sale. State whether the lender has the option or is prohibited from foreclosing and selling the property without going through the judicial property in case of a default.

Step 8 – Explain Mortgage Insurance Preference

12. Mortgage Insurance. Specify whether or not the borrower must carry mortgage insurance, an insurance policy that protects the lender if the borrower defaults on payments.

Step 9 – Choose the Ownership Transfer Option

13. Ownership Transfer. State whether or not the lender can make the entire loan balance due and payable immediately if the borrower transfers ownership of the property.

Step 10 – Fill In Assignment Details

14. Borrower. Specify whether or not the borrower can assign an interest in the agreement without the lender’s permission.

15. Lender. State whether or not the lender can assign an interest in the agreement without the borrower’s permission. 

Step 11 – Identify Governing Law

16. State Law. Choose the state’s laws that will govern the construction of the mortgage deed.

Step 12 – Write Other Details

17. Additional Details. You can include provisions to this mortgage deed.

Step 13 – Obtain Signatures

18. Signatures. Specify whether or not a notary public, witnesses, or both will acknowledge the agreement. 

In conclusion, a Mortgage Deed is a fundamental document ensuring the smooth functioning of real estate transactions. Understanding its nuances, differences from a Deed of Trust, and the foreclosure procedures involved is essential for both borrowers and lenders. By adhering to best practices and state-specific laws, parties involved can navigate property transactions securely and efficiently.

Frequently Asked Questions

How does a Mortgage Deed differ from a loan agreement or promissory note?

While a loan agreement or promissory note outlines the terms and conditions of the loan, a Mortgage Deed specifically establishes a lien on the property, acting as collateral for the loan.

Why is it important to file a Mortgage Deed with the local recording office?

Filing the Mortgage Deed with the local recording office ensures that the agreement is officially recognized and becomes a public record. This helps protect the lender's interest in the property.

Why is it essential to use a Mortgage Deed in real estate transactions?

Using a Mortgage Deed helps prevent misunderstandings between parties involved and ensures compliance with IRS regulations. It provides a legal framework for intra-family loans and secures the lender's interests in case of borrower default.

Mortgage Deed Sample