Getting mortgage loans is Biblical. The Bible specifically mentions that the rich rule over the poor, and the borrower is a servant to the lender (Proverbs 227 NKJV). However, the footnote under the same passage of the Life Application Bible indicates.
Does this mean we should never borrow? No, but it warns us never to leave a loan without carefully examining our ability to repay it. A loan we can handle is enabling: a loan we can’t handle is enslaving. The borrower must realise that until the mortgage loan is repaid, he or she is a servant to the individual or institution that made it.
Definition of some technical terms
Longman Dictionary of Contemporary English defines landed property as land and buildings, collateral as property or other goods that one promises (pledges) to give someone if he/she cannot pay back the money lent to them.
A mortgage is a legal arrangement by which someone borrows money from a bank or similar organisation (for example, to buy a house) and pays back the money over the years.
Nature of mortgage
Until recently, it sufficed for Commercial banks to grant mortgage loans on mere capital values of interests in properties.
Nowadays, unrealizable values are placed on the mortgaged properties in the event of a forced sale, coupled with the falling interest in purchasing those properties, because of mere sentiment and our cultural inclination.
Banks (mortgagees) granting mortgage loans have devised additional collateral as a means of security in recouping their money.
Focus 1
The additional collateral is in the form of the societal status of the borrower (mortgagor), which is called into question, as well as the status and credibility of his/her guarantor(s).
Unfortunately, there is no foolproof method anywhere, just as there is no guarantee that the mortgagor may still default despite prior investigations carried out on him/her. That the guarantor(s) will be liquid enough to bail him/her out whenever the need arises.
Mortgagee’s (bank’s) security. The mortgage’s speciality for the money lens depends primarily upon the proposal ànd upon the sum expected to be realised if it is brought to sale at any time.
Focus 2
The security for payment of interest on the loan agreed fate depends upon the income properly capable of producing.ng
The usual advance by way of mortgage to two-thirds of the estimated fair market value of the property, thus leaving the mortgages alone a third margin of safety.
On the other hand, when there is a risk of future depreciation, an advance of then: limits or even one-half may be more satisfactory than the usual two-thirds.
A lending bank (mortgagor) is always on a “level mortgage” and not an “equitable mortgage” before advancing the mortgagor loan.
Focus 3
An equitable mortgage is often effected, without a mortgage deed, by a written agreement acknowledging the loan and promising to execute a legal mortgage if required.
A verbal agreement accompanied by a mere deposit of the title deeds of the property. This type of mortgage does not transfer any interest properly to the mortgagee and may always pose a problem. In the event of a forced sale of the property, whenever the mortgagor defaults.
Value’s role
In making ä valuation for mortgage purposes, the valuer must have regard to the mortgagee’s position about the property and the remedies available to it in the event of default by the mortgagor.
The valuer bears in mind that it may be necessary to realise the security in the future and that unless the sale price then is sufficient to cover the mortgage debt, arrears of interest and costs, the mortgagee will suffer loss.
Above all, the valuer should consider not only the present value but particularly whether that value is likely to be maintained in the future and would be readily realisable on the forced sale of the property.
There can be more than one mortgage on a property, the second or subsequent mortgages being mortgages of the mortgagor’s equity of redemption. Provided they are all registered,
The second and subsequent mortgagees
There can be more than one mortgage on a property, the second and subsequent mortgages being mortgages of the mortgagor’s equity of redemption, provided they are registered.
The second and subsequent mortgages (lenders) will each have a claim on the property in the irregular order after the first mortgage’s claim has been satisfied.
There will be little security for such an advance unless care is taken to ensure that the total amount advanced, including the first mortgage, does not exceed what may reasonably be lent on the security of the property, two-thirds of its fair market value.
Auctioneering
This has to do with the public sale of the mortgaged property to the person making the highest bid or offer.
This is after the mortgagor might have defaulted, and his/her right of redemption has been foreclosed. Part of the mortgagee’s remedy is to apply to the court for authority for such a sale.
An auctioneer handles the public auction sale and makes sure he does not sell below the reserved price already fixed by the mortgagee (lender).
All issues relating to the purported sale being below the market value of the mortgaged property, the outstanding balance of the actual loan advanced, together with the accrued interest, as well as other related issues, are to be left for the competent court of jurisdiction to unravel.
Conclusion
Certain types of landed property are not desirable securities for mortgage purposes. A vacant site (especially a portion of the family land), for instance, may be of considerable value and cost nothing in maintenance.
Its value is necessarily speculative, and there is no immediate income forthcoming. If, therefore, the mortgage interest falls into arrears, the taking of possession of the land by the mortgagee (bank) will not prevent the accumulation of further arrears of interest pending the time when a purchaser can be found.
Focus
Factory premises are also a doubtful security, particularly if only suited to the needs of a particular trade, which may be dependent on local industrial conditions.
Although the landed property is, first and foremost, the collateral in vogue in considering a mortgagor for a mortgage loan, such property should, among other things, be viable.
In a good location and situation, devoid of any encumbrances and should also be supported by a Certificate/Right of Occupancy, as well as the relevant State Governor’s consent to mortgage. Read more related posts on our news page of the
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