Did You Know?
The word mortgage is derived from old French words mort, which means death, and gage meaning pledge.
With the skyrocketing property prices, it has become almost impossible for the common man to buy a home without availing a mortgage loan. This loan is meant for financing purchase of real estate, and comes with specific interest rates, payment schedule, and payment tenure. So, there will be a lender and a borrower in a mortgage loan.
The borrower is actually entering into a legal contract with the lender, thereby promising to repay the loan on time, along with the interest. The property purchased by the borrower using the mortgage, is the collateral for the loan. So, in a mortgage loan, the borrower pledges the property as security for repayment of the loan. If the borrower fails to make timely payments, the lender can take possession of the property and sell it. This procedure is called foreclosure.
Though the term mortgage is used to denote the loan, in fact, it refers to the lender's security for the debt and not the debt itself. However, it has become a common practice to use the terms mortgage and mortgage loan interchangeably. Mortgagor and mortgagee are two other terms related to mortgage. These terms are used to denote the borrower and lender of a mortgage loan. Then, who is the borrower and who is the lender?
Difference Between Mortgagor and Mortgagee
The term mortgage is legally defined as follows: "A legal document by which the owner (i.e., the buyer) transfers to the lender an interest in real estate to secure the repayment of a debt, evidenced by a mortgage note".
As mentioned above, the term mortgage denotes the pledging of property and not the debt or loan. The problem lies in the usage of the word. People often say that they are getting a mortgage from the bank. It is not the bank that is giving the mortgage. In fact, the person who takes a mortgage loan is giving the mortgage to the bank. So the borrower gives the mortgage to the lender who receives a security interest in the property in return of the loan amount he lends to the former.
Mortgagor is the borrower who takes loan from the lender and pledges his property as a security for repayment.
Mortgagee is the lender who gives the loan to the mortgagor and receives the security interest in the property from the latter.
There is an easy way to remember the difference between mortgagor and mortgagee. Both mortgagor and borrower have the alphabet 'o' in common. Similarly, the words mortgagee and lender have the alphabet 'e' in common. Try to remember 'mortgagor' (ends with 'or') as the word used to denote the person who does the action of mortgaging. Likewise, the term 'mortgagee' (ends with 'ee') as the word for the recipient of the action.
Duties and Responsibilities
Mortgagor: The mortgagor has the right to be informed about the total cost of the loan, settlement charges, etc., before he enters into a mortgage loan agreement. The mortgagor has the right to redeem the property once he pays off the loan amount. In that case, he has the right to receive the title deeds as well as the mortgage deed. In case of payment default, the mortgagor has the right to cure the default within the stipulated period. However, he may be required to pay late fees.
The mortgagor has the right to lease out the property, in accordance with the terms of the contract. The mortgagor, who is in possession of the property, has to pay the taxes too. In case of an impending foreclosure, the mortgagee can sell the property and pay off the mortgage loan. The mortgagor is not liable for the legal cost incurred by the mortgagee, with regard to foreclosure.
Mortgagee: He has the right to get mortgage payment from the mortgagor. If the mortgagor fails to make loan repayment, the mortgagee can take possession of the property and sell it to procure the loan amount. He has to serve prior notice to the mortgagor before selling the property. The mortgagee must take reasonable efforts to avoid foreclosure by negotiating with the mortgagor and come up with a reasonable alternative.
In case of foreclosure, the mortgagee can use the 'acceleration clause,' and declare that the entire debt has to be paid immediately. After the foreclosure sale, the mortgagee can evict the mortgagor. If the property is in the possession of the mortgagee, he has to pay taxes, keep the property in well-maintained and secured condition. In that case, he is not entitled to lease the property in a way that is injurious to the mortgagor. He must also maintain records of the profits from the property during the time of his possession.
In short, mortgagor is the person who takes the loan and the mortgagee gives the loan. While the mortgagor pledges his property as security for the loan, the mortgagee receives the same. The rights and duties of mortgagor as well as the mortgagee may vary with the type of mortgage and respective state laws. So, it is always better to consult an expert before taking a mortgage loan.