Understanding Your Mortgage Paperwork
Many properties, whether residential or commercial, are being lost by their owners due to foreclosure. The best way to avoid this from happening to you is to understand documents pertaining to mortgage loan and foreclosure including the mortgage, promissory note and a deed of trust.
What are Mortgages?
The term mortgage, or mortgage loan as it is normally called, is associated with foreclosure. In a sense, when a loans maturity date is reached without payment of both the principal amount and interest, then foreclosure is imminent for the said property or business.
A mortgage is using a property, whether real estate or commercial, to be used as security for payment of a debt, or a mortgage loan. Normally, a mortgage loan is used to refinance a business or to be used as a basis for home improvement. When done, a contract, or a mortgage, will then be made by the lender containing the information of the said property, the amount loaned, and the interest rate incurred on the principal amount, and the maturity date.
When the borrower fails to pay the exact amount as stated in the mortgage, then they may issue a promissory note requesting the lender to extend the maturity date.
Promissory Note and what’s in it?
A promissory note is simply defined as a note or a contract which specifies detailed terms regarding the payment of a debt from the borrower to the lender. The note contains the amount owed by the borrower to the lender, the interest rate and the deadline for the payment or maturity date. A promissory note is also very useful for the purpose of tax and record keeping of the said transaction since it can be honored as a legal document.
A promissory note is used when the borrower fails to pay the agreed amount on time and requests an extension. If the lender agrees, then the promissory note will become a contract regarding the promised payment, and can be used in any legal proceeding during the time of foreclosure of judicial sale.
There are two kinds of promissory notes being used to date; one is the normal promissory note which contains the above information, and the demand promissory note which contains the same information as above yet no deadline of payment is stated. One catch of using a demand promissory note is that the lender can demand the payment from borrower at any time they see fit. Normally, the lender will inform the borrower in advance concerning the date of payment.
The concept of a Deed of Trust and a lien:
A deed of trust is simply an attached document which serves as a security interest by the borrower to the lender to be able to pay for a certain debt or a loan. Usually, a deed of trust is considered a lien rather than a stipulation stating a transfer of title of the property from the borrower to the lender.
Also, liens can also be considered as a non-possessory security interest which grants the lender from holding or securing the said property without resulting in a sale until the debt is paid.
A deed of trust is often used since the cost is less compared to an actual mortgage contract. The deed is a non-judicial document and only contains the agreement between the borrower and the lender. Also, using a deed of trust is much more preferable by the lender since the process of foreclosure can be sped up from 1 year to a mere 3 months.
Keep tabs on anything that’s written:
If you can’t pay the mortgage payment in full by the maturity date then you can initiate a promissory note between you and the lender to extend the time of payment. You may also use a deed of trust or a lien when you don’t want your property to be sold during foreclosure, which will give you ample time to get your property back as stipulated in the deed or lien.
In applying for a mortgage loan, it is always important to keep a close eye on your documents pertaining to the said transaction; and knowing the importance of each can give you the elbow room that you need to maneuver your property away from foreclosure.
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