A mortgage is security for a loan that is given to a borrower who needs the money to purchase or refinance a home. The mortgagor is the borrower who makes payments to the lender, in return for the lender lending him the money. The mortgage is not the act of loaning the money to the borrower, but is the security interest for the debt itself. A mortgage is the legal document that secures the loan by collateral, which is the mortgagor’s home or property. To explore this concept, consider the following mortgagor definition.
Definition of Mortgagor
- An individual who mortgages a piece of property.
1575-1585 Latin mortgage + -or
What is a Mortgagor
A mortgagor is a person who is either in the market for a new home, or who wants to refinance his existing home, and he needs to take out a loan in order to do either of those things. When this person receives the loan, he signs documents for repayment of the loan, including a mortgage – which secures the loan with the home. This person is then known as a “mortgagor.”
For example, a mortgagor contacts a bank, or other lender, which agrees to loan him the money, provided he put an asset down as collateral. The home becomes the asset securing the mortgage. Once the mortgagor has been granted a loan, he can use that money to buy a home, or re-finance the home he is already living in, for the purpose of either remodeling the home or paying off a big expense that is unrelated to the home.
Should the mortgagor default, or fail to pay as agreed, on his mortgage, then the lender can put his house into foreclosure proceedings. For example, the mortgagor can be forced by the lender to sell his home in order to make good on the balance of his debt. It is then up to the mortgagor to find a new place to live.
Due on Sale Clause
It used to be that a mortgagor could sell his property, and freely transfer the mortgage to a new owner. However, in recent years lenders have desired more transparency insofar as who the actual owner(s) of the property are. This is because a new owner may not have as good a credit history as the previous owner, and may default on his payments.
To prevent this from happening, lenders now insert what is known as a “due on sale” clause into a mortgage. A “due on sale” clause requires that a mortgage be paid in full when the mortgaged property is sold. Upon agreeing to a due on sale clause, the mortgagor must pay the lender the remainder of the balance immediately once the mortgaged property is sold. This is enforced by the fact that documents verifying the loan and mortgage on the property are filed with the County Recorder, thus preventing the transfer of the home without the mortgagee’s knowledge.
Mortgagor Example in Predatory Lending
An example of a mortgagor outrage can be found in a case where the plaintiff accused two separate banks of predatory lending practices. In 2016, Ricardo Fornesea, Jr., acting pro se, filed a complaint in the Houston, Texas Division of the United States Bankruptcy Court for a money judgment against HSBC Bank USA and US Bank Trust NA. In his complaint, Fornesea sought compensatory and punitive damages, claiming that both banks were guilty of engaging in predatory lending practices.
Fornesea accused HSBC of filling in fake numbers on his and his wife’s loan application. He also accused the bank of refinancing the Forneseas’ note twice within one year, so as to charge them “unreasonable” interest rates and fees. Fornesea also asserted that his and his wife’s actual damages included a loss of equity in the two pieces of real property that he and his wife owned together.
The defendants filed motions to dismiss on the ground that Fornesea failed to state a claim upon which the court could grant relief. For one thing, HSBC argued, there was no cause of action under Texas law for “predatory lending.” As for another of Fornesea’s claims, HSBC argued that there was no claim for a breach of fiduciary duty, because Texas law does not recognize a fiduciary duty to exist between a mortgagor and a mortgagee.
Ultimately, the court granted the defendants’ motions to dismiss, agreeing that Fornesea’s complaint, which had alleged several breaches of conduct, failed to state a claim upon which any relief could be granted. Most importantly, the court agreed with the defendants that, not only was there no cause of action under Texas law for “predatory lending practices,” but there was also a failure to state a claim upon which relief could be granted with regard to a breach of fiduciary duty.
Related Legal Terms and Issues
- Actual Damages – Money awarded to compensate someone for actual monetary or property losses. Also referred to as “compensatory damages,” the amount of money awarded is based on the proven loss, injury, or harm proven by the plaintiff.
- Asset – Any valuable thing or property owned by a person or entity, regarded as being of value.
- Collateral – Something of value pledged as security for repayment of a loan.
- Defendant – A party against whom a lawsuit has been filed in civil court, or who has been accused of, or charged with, a crime or offense.
- Equity – The monetary value of a property or shares in a company after all debts have been paid.
- Fiduciary Duty – A legal obligation for one party to act in another party’s best interests.
- Foreclosure – A legal process wherein a lender attempts to recover the balance of a mortgage from a borrower who has stopped making payments as agreed by forcing the sale of the borrower’s home.
- Mortgagee – The entity that lends a mortgage to a borrower, typically a bank.
- Plaintiff – A person who brings a legal action against another person or entity, such as in a civil lawsuit, or criminal proceedings.
- Predatory Lending – A lending practice that inflicts unfair or abusive loan terms on a borrower.
- Punitive Damages – Money awarded to the injured party above and beyond their actual damages, to punish the wrongdoer for outrageous misconduct in a civil matter.
- Pro Se Litigant – A party to a legal action acting without legal counsel.