A MORTGAGE is a conveyance of property for the purpose of securing
debt, with the condition that if the debt is paid the conveyance is to
become void. A mortgage in form is really a deed of the land, with a
special clause stating that the grant is not absolute but only for the
security of the debt. It is usual for the debtor at the time of
executing the mortgage to execute also a bond or promissory note in
favour of the creditor for the amount of the debt. This is called a
MORTGAGE NOTE. Mortgages are frequently given in cases where there is
a debt existing to secure or indemnify the mortgagee against some
liability which he may possibly incur on behalf or for the benefit of
the mortgagor. For instance, when a man has indorsed another's note
for the latter's accommodation or gone on his bond as surety the
latter may execute to the former a mortgage of indemnity. The power of
a corporation to mortgage its property is usually regulated by its
character or by the general law under which it is organised. All
mortgages must be recorded in the office of the register of deeds for
the county in which the property is located. The object of recording
is to give notice of the existence of the mortgage to any one who
might wish to purchase the land or to take a mortgage upon it. There
may be several mortgages upon the same property. The first mortgagee
is entitled to be paid in full first, then the second, and so on. The
mortgagee may use his mortgage as security for loans or he may assign
it as he pleases. When the requirements of a mortgage are not met the
holder has under certain conditions the right to FORECLOSE--that is,
to advertise the property for sale and, within a time fixed by law, to
sell it to satisfy the mortgage. It is usual for the mortgagor to
insure the property for the benefit of the mortgagee.
Although the terms of corporation mortgages are similar to those on
real estate such as is represented by dwelling-houses, the commercial
conditions make it inconvenient or impossible to foreclose and sell
such properties. To stop all business of a railway or to shut down the
work of a manufacturing concern would not only result in injury to the
public but would reduce largely the earning value of the property. To
overcome this difficulty where an active concern is financially
embarrassed, the court appoints a receiver, who is responsible for the
proper conduct of the business until a satisfactory reorganisation or
sale is accomplished.
Mortgages upon improved property, if properly graduated in amount,
should be safe and profitable investments. The buyer, however, must
exercise great care and good judgment. Should there be collusion
between the loaning agent and the land-owner, the money advanced may
be largely in excess of the actual property value. Villages with less
than a dozen houses are often the sites of investment companies doing
business under pretentious names and offering mortgage investments at
interest rates which by the local conditions are impossible. One of
the devices of these enterprising companies is to offer their own
guarantees as to both principal and interest of all mortgages
negotiated by them. The investor should be sure of two things: (1) The
safety of the principal, and (2) regularity in the payment of the
interest. There is great danger of default from causes not anticipated
by the mortgagor and over which he has no control.