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Mortgagee

An individual or entity that lends money to a borrower to purchase real estate

What is a Mortgagee?

A mortgagee is an individual or entity that lends money to a borrower for the purchase of real estate. In short, the mortgagee is the lender. Mortgage financing is commonly used all over the world, as people use it to finance the purchase of a house, office, or real estate property for any other use.

 

Mortgagee

 

From the perspective of the mortgagee (lender), he creates a priority legal interest in the value of the property, and it protects the lender in case the borrower is unable to repay the loan in full or defaults.

In several cases, lending is done through financial institutions, and the mortgagee represents the interests of the financial institution(s) that lends the money. It is the mortgagee’s responsibility to measure the financial risk of mortgagors (borrowers) and to develop lending packages and terms accordingly.

 

Summary

  • A mortgagee is a person or entity that lends money to a borrower to purchase real estate.
  • The mortgagee creates a priority legal interest in the value of the property, and this protects the lender in case the borrower is unable to repay the loan in full or defaults.
  • In several cases, lending is done through financial institutions and the mortgagee represents the interests of the financial institution(s) that lends the money.

 

Rights of Mortgagees

The law governs the rights of mortgagees to protect them in the event the mortgagor is unable to repay. Listed below are some of the essential rights of mortgagees:

 

1. Right to foreclosure

The right to foreclosure limits the mortgagor from exercising his/her right of redemption, and it can be used if there is a conditional sale or an anomalous mortgage.

 

2. Right of suit for sale

The right of suit for sale is similar to the right to foreclosure; however, in a suit for sale, the mortgagor is completely barred from using his right of redemption. In such a case, the mortgagee is allowed to become the owner of the property, sell it, and use the proceeds to recover its claim.

 

3. Right to sue for mortgage money

The right to sue for mortgage money gives the mortgagee the right to sue in case of certain conditions. An example is if the mortgagor fails to provide adequate security to the property, due to which it is partially or completely destroyed.

 

4. Right to sale without court intervention

The right to sale without court intervention allows the mortgagee to sell the property without informing the courts under certain conditions. One such condition could be if the mortgagor defaults and is unable to service the payment after three months of being served a notice.

 

5. Right to spend money

The right to spend money allows the mortgagee to spend money on the property for purposes such as for the preservation of the mortgaged property from forfeiture, sale, or destruction. The mortgagee can add the money spent by him to the mortgage money due to him and is entitled to receive interest on the amount at the same rate as applies to the principle money.

 

6. Right to the accession of the mortgaged property

The right to the accession of the mortgaged property allows the mortgagee to retain any additions to the property as security. For instance, if the mortgagor builds a building on a land that has been mortgaged, the mortgagee can retain the building as security for the loan.

 

7. Right of possession

The mortgagee also has the right of possession under which he/she receives ownership of the property if certain rules are not met.

 

Mortgagee vs. Mortgagor

Mortgagee refers to the one who is lending the money. He is responsible for determining the terms and related clauses of the mortgage agreement. The mortgagee also needs to disclose all necessary information to the mortgagor before signing the agreement, which also involves the terms of repayments and interest.

On the other hand, mortgagor refers to the one who is borrowing the money. He is responsible for providing all the required documents that the mortgagee needs for the agreement to push through.

For the secured loan, the mortgagor needs to declare his property as collateral, and its ownership will be transferred to the mortgagee for the duration of the agreement or until he finished paying for the loan and its corresponding interest payments. In general, the amount of the collateral is higher than the amount of the loan. It is designed to protect the mortgagee in case the borrower fails to fulfill his obligation.

In case the borrower is unable to make the repayments on time, the mortgagee can sell the collateral. If it happens, the mortgagor should abide by the mortgagee’s decision.

 

Additional Resources

CFI is the official provider of the Certified Banking & Credit Analyst (CBCA)™ certification program, designed to transform anyone into a world-class financial analyst.

In order to help you become a world-class financial analyst and advance your career to your fullest potential, the additional resources below will be very helpful:

  • Credit Risk Analysis
  • Foreclosure
  • Notice of Default
  • Quality of Collateral