Mortgage Transactions: Information and Application of Mortgage laws
“A mortgage is a transaction whereby property is placed as security for the performance of some obligation. The obligation usually consists of the duty to repay money that has been borrowed together with the interest arising on the loan.”
DENIS M. LINEHAN
The Laws on Mortgage
Mortgage is a legal term which refers to the transfer of title to real estate which is made to secure the performance of some act such as payment of money by the person making the transfer (debtor). Upon the performance of the act, the grantee (creditor) agrees to convey the property back to the person (debtor) who has conveyed it to him (creditor).[i]
According to law, the legal requisites of a mortgage are, that they be constituted to secure fulfillment of a principal obligation; the mortgagor be the absolute owner of the thing mortgaged; and that the persons constituting the mortgage have the free disposal of their property, and in the absence thereof, that they be legally authorized for the purpose.
A mortgage like other special contracts has legal requisites specified by law. A legal mortgage is created when the assets of a mortgagor are conveyed to the secured party, the mortgagee, as security for the obligations, but subject to a right to have the assets reconveyed when the obligations are performed.[ii]
Available Mortgages in the Irish Market
In the Irish Market, mortgage is regarded to be similar with personal loans and car loans which means the debtor pays the interest owed and some of the capital owed.[iii]
There are different types of mortgages but the most common for primary mortgagers is the annuity mortgage which fits the given definition of mortgage. The applicable mortgages in the Irish market are “Deferred Start Mortgage”, the “Interest Only Mortgage”, and the “100%” Mortgage”[iv].
Deferred Start Mortgage refers to a mortgage that allows buyers to put off the initial mortgage repayments for up to the first four months. The four months that are deferred are then spread across the remaining term of the mortgage[v].
Interest Only Mortgage is a type of mortgage where in the debtor pays the interest only on the mortgage for a period of time. Such type of mortgage is often offered by lenders fro a period of one to three years after which the mortgage is switched to a standard mortgage[vi].
Finally, the “100% Mortgage” is the most recent type of mortgage contract in the Irish market which comes with a maximum term of 35 years which comes with different rates[vii].
Other types of mortgage available in the Irish market are Annuity, Tracker mortgage, Pension Mortgage, Re-mortgaging, residential investment mortgages, and the foreign policy mortgage.
Problems of the Irish Real Estate Industry
The Republic of Ireland is controversially described as the Irish Property Bubble in 2006. With this, it means that there has been a rapid speculative increase in the valuations of real property in housing and they have already reached unsustainable levels relative to incomes and other economic elements.
Since December of 2006, there have been forecasts about the collapse of the Irish property Bubble. Evidences continue to emerge that the rate of increase drastically plunged in 2006 in certain districts for certain house types, may have bowed negative. Nevertheless at a cumulative level, the cost of Irish Property unrelenting to rise in 2006. The International Monetary Fund stated in 2006 that the said Irish Property Bubble, if maintained would go in opposition to all confirmations gathered in other countries that had had gone thru such a prodigy. House prices have gone three times higher since this was predicted.
Mortgage frauds have also been reported where mortgagors over estimate their income to allow them to obtain a higher loan. There is a fret that these people might be tied into a stern debt if Ireland has a property crisis like that in Britain during the latter years of the 80’s.[viii]
The Irish government owned broadcasting company showed in December 2006, as investigation in primetime report which undermined the proof financial statistical details of potential costumers being put up for sale by mortgage brokers to auctioneers. Such information would allow auctioneers to make the most of the price achieved from potential purchasers.
The augment price of property values in the country, and affluence obtained from property trading, has been a strong reason persuading the Irish people, to expend in overseas property. Irish corporate apprehensions have also become considerable investors in London, Berlin, Paris and American Cities.
Achievement of mortgage transactions in the buying and selling of property
Since mortgage is a security to the payment of an obligation, the mortgagor as a general rule does not have the right to sell the mortgage property until the obligation has not yet been fulfilled. In cases when the mortgagor fails to fulfill such obligation, the mortgagee has the legal right to go to a court and seek to repose and sell the mortgage property. However, there are initial steps to be taken before such process is completed. The exception to this rule is when the mortgagee agrees to transfer the obligation to a third party, a buyer.
A concept that might work as an achievement of mortgage transaction in selling and buying of a property is the negative equity, wherein the value of the mortgaged property is less than the principal debt owed from the mortgagee. In this case, it could happen that the mortgagee will not allow the mortgager to sell such property on the contrary, if the mortgagee agrees to sell the house, the third party, the buyer will agree to transfer the negative equity in cases where the mortgager for some valid reason needs to transfer to another home, in case the mortgage property is a residential house[ix].
The important Role of Judgment Mortgage
Judgment mortgage is along tem method of securing fulfillment of an obligation in cases where other options have been tried but failed. In case when the debtor owns a certain property, regardless where such property is jointly owned with another individual, the judgment can still be registered as a mortgage against such property. Consent is not a requisite in this kind of mortgage regardless whether such property is family home. Moreover, in this type of mortgage, contract is valid for twelve years from the date of judgment and if in that time the debtor sells his property or refinances his mortgage, he will have to pay it of with legal interest and costs. It is surprising the number of houses that do not change hands within twelve years, specifically where the debtor or the mortgagor has other financial issues. The important role of such contract is that, a creditor or the mortgagee who has a registered Judgment Mortgage has the legal right to file in court for an order of sale of such mortgage property[x]. This is to establish enough security for the creditor of the mortgagee.
In the course of the paper, we have established a legal definition of a mortgage which is a real contract whereby one person (mortgagor) offers hi real property as a security for the principal obligation and with the understanding that when the obligation is paid or fulfilled, the mortgage or encumbrance of said property shall be cancelled and release. From such definition, we were able to draw the requisites of a mortgage which essentially constitutes a real property to be mortgaged by the mortgagor/debtor to the mortgagee/creditor. We were also able to discuss the principle of mortgage in the situation of the Irish Estate Market and basic Irish concepts of mortgage. Along the discussion of the topic, we were able to manifest the legal rights of the mortgagee or the creditor and the mortgagor or the debtor.
According to law, the remedies or the legal right vested upon the mortgagee or the creditor upon default of the debtor upon default of the debtor/mortgagee are: To sue the mortgagor on the contract to fulfill the obligation; To dispossess the mortgagor and occupy the land itself or sell the land; To proceed with an action for foreclosure; After foreclosure, it may again sue on the contract to fulfill the obligation and ask for payment of damages. The law also vested different rights to the mortgagee/creditor, which is his remedy of sale upon default. As a general rule, when a mortgage is a creditor/mortgagee forecloses a mortgage, he waives his rights to demand the fulfillment of the obligation at the same time; however, he may opt for an alternative to arrange with the court to have the mortgage property sold and still sue to recover for the fulfillment of the obligation. Furthermore, the Judgment mortgage plays an important role in the security of debt on the part of the creditor/ mortgagee[xi]. The case of Judgment mortgage applies to case of mortgage contracts where the debtor may use to his advantage the legal provision exempting certain property such as family home and jointly owned property, from foreclosure. In cases such as this, the creditor may resort to a judgment mortgage which do not regard whether a mortgage property is family home of a joint investment[xii].
In like manner, the legal rights vested upon the mortgagor or the debtor are: The mortgagor may repay the mortgage loan together with interest and all expenses and obtain a re-conveyance of the land; The mortgagor may acquire an accounting for any benefits acquired from the land by the mortgagee and deduct them from the amount owing upon redemption; The mortgagor may acquire liberation against the penalty of an increase of rate clause[xiii].
[i] Mortgage. The ‘Lectric Law Library’s Lexicon on. Retrieved 14, March 2007, 2:42. http://www.lectlaw.com/def2/m040.htm
[ii] Stanley v Wilde (1899) 2 Ch 474; Carter v Wake (1877) 2 Ch D 605
[iii] Different Mortgage Options Available. Property and News Updates Daily. firsthome.ie. Retrieved 14, March 2007, 2:42. http://www.firsthome.ie/mortgages-in ireland.aspx
[iv] Different Mortgage Options Available. Property and News Updates Daily. firsthome.ie. Retrieved 14, March 2007, 2:42. http://www.firsthome.ie/mortgages-in ireland.aspx
[v] Different Mortgage Options Available. Property and News Updates Daily. firsthome.ie. Retrieved 14, March 2007, 2:42. http://www.firsthome.ie/mortgages-in ireland.aspx
[vi] Different Mortgage Options Available. Property and News Updates Daily. firsthome.ie. Retrieved 14, March 2007, 2:42. http://www.firsthome.ie/mortgages-in ireland.aspx
[vii] Different Mortgage Options Available. Property and News Updates Daily. firsthome.ie. Retrieved 14, March 2007, 2:42. http://www.firsthome.ie/mortgages-in ireland.aspx
[viii] Louise McBride. Mortgage brokers feel the heat from regulator. Sunday Business Post. July 31, 2005. Retrieved, 15, March 2007 5:29. http://archives.tcm.ie/businesspost/2005/07/31/story6785.asp
[ix] Your legal rights. Buying and Selling Property Rights. Community Legal Service. Retrieved. 15, March 2007. http://www.clsdirect.org.uk/documents/leaflet05e.pdf
[x] Judgment Mortgage. Crosskerry’s Solicitors. Retrieved, 15, March 2007. 6:00. http://www.croskerrys.com/legal%20process/lp_judgementmortgages.htm
[xi] Security, Insolvency and Creditor’s Rights. PPS. Retrieved, 15, March 2007. 6:00. http://www.google.com.ph/search?hl=tl&q=rights+of+the+mortgagee&btnG=Hanapin
[xii] Judgment Mortgage. Crosskerry’s Solicitors. Retrieved, 15, March 2007. 6:00. http://www.croskerrys.com/legal%20process/lp_judgementmortgages.htm
[xiii] Security, Insolvency and Creditor’s Rights. PPS. Retrieved, 15, March 2007. 6:00. http://www.google.com.ph/search?hl=tl&q=rights+of+the+mortgagee&btnG=