Property rights, part 3: the mortgage

A mortgage is a monetary loan — usually from a bank, but not only — typically taken to buy a property. To secure repayment, the borrower (the mortgagor), who holds the right in the land, charges that right in favor of the lender (the mortgagee). The charge over the property is the mortgage, and it serves as the security for repaying the loan. A private mortgage is possible too: Reuven borrows from Shimon, and Shimon conditions the loan on registering a charge over Reuven's land — so that even if Reuven becomes insolvent, Shimon has something to collect from.

A mortgage is one of the five rights in land and a land transaction in itself. Once an undertaking to register a mortgage is registered, no conflicting transaction may be registered (absent the beneficiary's consent or a court order). And the only way to charge land, or a registered lease in land, is by registering a mortgage. Advanced tip: a mortgage can serve as a family-security mechanism — for example, parents funding a child about to marry can secure the money through a registered charge.

• First-ranking mortgage;
• Second-ranking mortgage;
• Pari-passu (equal-ranking) — on realization, both mortgagees collect in parallel and equally (or as fixed in the realization process); consent is required here too.

Realization: putting the property up for sale through the enforcement office (usually via a court-appointed receiver), with the proceeds paying the debt to the mortgagee. Where other debts exist, the mortgagee is a secured creditor — first in line, with the other creditors after. Realization follows a court judgment or an enforcement-registrar's order.

Don't worry: the mortgage doesn't strip the owner's right to hold, use, and transact in the property — all subject to the mortgage's terms. But any deal done after the charge is subject to the mortgagee's priority as a secured creditor — and if the property is sold in enforcement, a transaction contradicting the mortgage's terms has no effect.

Replacing the old loan with a new one on better, cheaper terms. Mechanically: the old mortgage sits in first ranking; the new one registers in second; the new loan discharges and cancels the old — leaving the new mortgage alone (and it can be upgraded to first ranking by an amendment deed).

Two main cases. (1) The whole property is mortgaged — e.g., Rona and Ron divorce; the jointly-owned home is fully charged to the bank. In the divorce agreement Ron transfers his half to Rona, who becomes sole owner subject to the bank's consent — the existing mortgage, on its original terms, now binds Rona's full ownership. (2) The mortgage covers part of the rights, and after the sale it should bind the whole — requiring, beyond the bank's consent, an amendment deed enlarging the charged share (from half to whole), typically alongside a new mortgage financing the purchase of the other half.