What Is a Mortgage Deed?
A mortgage deed or mortgage agreement is a written document officially recognizing a legally binding relationship between a borrower and lender. When a borrower takes out a loan to purchase a real estate property, they agree to pay the lender back for the loan through this document.
Under its terms, the borrower maintains real estate property ownership, so they can use it as they see fit. During the repayment period, the lender, usually a bank or financial institution, maintains an interest in the real estate property.
This security interest, called a mortgage, allows the lender to recover the property if the borrower fails to pay. If the borrower fails to adhere to the mortgage agreement terms, the lender can take possession of the property through foreclosure. They can also pursue reasonable attorney’s fees incurred.
When to Use a Mortgage Deed
You can use a mortgage deed if you loan money to another person and want to keep a security interest in the property until they pay back their debt. Alternatively, you can initiate a mortgage deed if you want to borrow money and offer the property you’re purchasing as a security to the lender that you’ll meet your repayment obligations.
Some specific use cases for this document include:
- Purchasing a home
- Refinancing an existing mortgage
- Investing in commercial real estate
- Obtaining a government-backed loan, like a loan that the Department of Veterans Affairs (VA) or the Federal Housing Administration (FHA) insures
Key Elements of a Mortgage Deed
A simple mortgage contract generally includes the following elements:
- The parties’ information: The borrower’s and lender’s identifying and contact information.
- Property details: A summary of all the mortgaged property’s details, including its material facts, location, and value.
- The principal sum of the loan: The starting amount of the loan and any interest thereon the buyer must pay over time.
- Repayment terms: The terms to which a buyer agrees to pay back a mortgage loan.
- Mortgage conditions: Conditions under which the buyer will receive a loan, including a credit check, employment verification, and proof of income.
- Remedies and default: The remedies available to the lender in case the buyer defaults.
- Redemption rights: The borrower’s right to redeem the property even after they default if they pay off the outstanding loan balance.
- Registration and stamp duty: The costs associated with distributing a loan.
A mortgage deed should clearly state the amount of money borrowed (the principal amount), the interest rate charged, and the principal (the interest amount) agreed upon in the loan agreement or promissory note.
How Does a Mortgage Deed Work?
A mortgage deed involves several steps to create a concise and legally binding relationship between a borrower and a lender. It begins with a loan agreement that the borrower (the mortgagor) and the lender (the mortgagee) enter into. Within this agreement, they outline the loan’s terms and conditions.
Once they settle on these details, they begin writing the deed. Within this deed, they highlight the borrower’s agreement to give the lender a lien on the property. This document also covers details like the property description and unique mortgage covenants.
From there, the following steps occur:
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The parties record the mortgage deed in the public land records office of the county where the property resides. This way, other parties know that the property has certain restrictions.
- When you go through the filing process, your document receives a unique identifying number and becomes part of the county’s public record. This way, everyone can benefit from a greater deal of transparency relating to the transaction.
- Following the deed’s guidelines, the borrower pays the lender back for the loan. The borrower should make timely payments, pay real estate taxes, maintain property insurance, and fulfill other responsibilities.
- If the borrower defaults on their loan payments, the lender can exercise their right to initiate foreclosure proceedings.
- If the borrower makes all their payments, the lender releases the mortgage and records the release in the public land records office. Then, the borrower has unrestricted ownership of the property.
Mortgage Deed vs. Deed of Trust
A mortgage deed and a deed of trust create a lien on a property to secure loan repayment. Some states allow one or the other, while others permit both. Explore their key differences below:
States That Allow Them
Here’s a list of states that allow mortgage deeds and deeds of trust:
| State | Mortgage Deeds Permitted? | Deeds of Trust Permitted? |
|---|---|---|
| Alabama | Yes | Yes |
| Alaska | No | Yes |
| Arizona | Yes | Yes |
| Arkansas | Yes | Yes |
| California | No | Yes |
Number of Parties
- A mortgage deed is between two parties: The borrower and the lender.
- A deed of trust is between three parties: The lender, the borrower, and the trustee.
Structure
Within a mortgage deed, the lender must ensure the borrower meets their payment obligations.
Within a deed of trust, a trustee holds the borrower’s title in escrow until they meet all their payment obligations. The trustee can initiate foreclosure on the lender’s behalf if the borrower doesn’t make their payments.
Foreclosure Process
One of the significant differences between this agreement and a deed of trust is the lender’s remedy if the borrower defaults.
- With a few exceptions, mortgages are usually foreclosed judicially.
The lender must obtain a court order through the judicial process to take control of the property in foreclosure. Depending on the court’s calendar, the strength of the borrower’s defenses, and other procedural requirements, the foreclosure process could take several months to a few years.
- Deeds of trust typically go through a nonjudicial foreclosure process.
If a deed of trust has a “power of sale” clause (and most do), the trustee can foreclose on the property without a court order.
Keep in Mind
The non-judicial foreclosure process can be completed within two to three months.
However, each state has its rules, notice periods, and judicial and non-judicial foreclosure procedures so timelines may vary. Lenders must strictly follow these rules to avoid any challenges to the foreclosure sale.
Certain states also have a redemption period, giving the borrower a certain amount of time to buy back the property.
Here’s a summary of the differences between the two documents:
| Mortgage Agreement | Deed of Trust | |
|---|---|---|
| Who are the parties: | Borrower Lender | Borrower Lender Trustee (escrow company, title company, neutral third party) |
| Who holds the title: | Lender | Trustee |
| Who holds equitable title/right to use the property: | Borrower | Borrower |
| What happens if the Borrower defaults: | Foreclosure sale through the court system | Non-judicial foreclosure sale without a court order |
In addition to a mortgage deed and a deed of trust, there are other common types of deeds. Each one offers a different degree of protection during a real estate transaction. Make sure you select the correct type of deed for the sale or transfer of your property or piece of land.
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 Deed. Provide the effective date of the mortgage agreement.
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 promissory note that details the loan between the borrower and lender. You may need an affidavit of title to show proof of title. Also, provide the date of the loan agreement or note.
6. Principal Amount. Specify the total principal amount of the loan and the interest rate.
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 and 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 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 can foreclose and sell the property without going through the judicial property in case of a default.
Step 8 – Explain Mortgage Insurance Preference
12. Mortgage Insurance. Specify whether the borrower must carry mortgage insurance that protects the lender if the borrower defaults on payments.
Step 9 – Choose the Ownership Transfer Option
13. Ownership Transfer. State whether 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 the borrower can assign an interest in the agreement without the lender’s permission.
15. Lender. State whether 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 deed.
Step 12 – Write Other Details
17. Additional Details. You can include other provisions in our mortgage deed template.
Step 13 – Obtain Signatures
18. Signatures. Specify whether a notary public, witnesses, or both will acknowledge the agreement.
How to Sign a Mortgage Deed
Step 1 – Review Your Document Thoroughly
Before you sign your name, review your document thoroughly to ensure all the details are accurate.
Step 2 – Find a Witness
Find a suitable individual to witness all parties sign the document. While some jurisdictions have different requirements for witnesses, a good candidate is generally someone who:
- Is at least 18
- Has no interest in the property
- Isn’t related to you or the other party
- Won’t live at the property
Step 3 – Acquire All Relevant Signatures
Ensure to acquire all relevant signatures. If there are multiple borrowers or lenders, every party must sign for themselves.
Mortgage Deed Sample
Download a mortgage deed template as a PDF or Word file below:
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