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As common as mortgages are, there are a surprisingly large number of us who are under false impressions about the way they function, and what they actually are. They are not for instance a loan, even though the vast majority of people believe they are and often refer to them as a mortgage home loan. The terms mortgagee (the financier) and mortgagor (buyer), are part of a legal contract (mortgage) which uses the property as security on the debt. To safeguard the interests of the lender, this document provides a form of security in the event the debt cannot be repaid.

If it wasn't for the availability of mortgages, individuals and businesses would need to find the full amount for a property in order to purchase it. Although this article is brief, below are points that will help more in the understanding of how this system operates. The mortgagor who is also referred to as the Borrower (leading to the false impression that it is a loan) and the mortgagee, who is also called the Lender (again, falsely leading you to think that a loan has been agreed). A security measure designed for purchasing properties, called a lien, is enforced until the mortgage is cleared at the end of the term.

This system works so successfully because the risk of loss on the part of the mortgagee is all but eliminated as they have legal possession of the property until the debt is completely repaid. This lien than becomes a matter of public record when it is registered at the county courthouse or equivalent. Ownership of the property is then yours and cannot be transferred to anyone else until you have paid off the amount required to reverse the lien. What this means is that even though the mortgagee has possession of the mortgage he is not the owner of the property nor does he have the title.

The mortgage is a surety for the benefit of the mortgagee, so should the debt remain unpaid then the amount owed can be reclaimed by the sale of the property. This process has many names and in the United States it is referred to as foreclosure but this does need to go through the courts. The reason behind this process is to ensure the legal procedures have been followed and also why it is called Judicial Foreclosure. Obviously there is much more to the subject than this, but these are the basic foundations upon which the mortgaging system has been constructed.