In Georgia, as in many other states, the way people buy residential real estate without having to pay the full price in cash up-front, is by “mortgaging” the property.
A prospective homeowner borrows the money he needs from a bank or other lender and the bank holds the mortgage to their home.
What this means is that the bank holds a security interest in the homebuyer’s home. A mortgage is a security interest in real property that is held by a lender as a security for a debt, usually a loan of money.
In Georgia, a mortgage is a “conveyance of a lien to secure an obligation” which terminates upon payment of the obligation (i.e., the money you owe the bank). To be a mortgage, there are 3 required elements:
- a debt,
- a conveyance, and
- a defeasance clause.
The mortgage does not convey title (to the homeowner’s home). Nor is it a debt. Instead, the mortgage is security for the debt.
The main difference between a mortgage and a “security deed” is the “defeasance clause.” A security deed will provide for the instrument to be reconveyed or cancelled upon full payment of the debt. A mortgage, on the other hand, does not do this. It provides that when the debt has been paid in full, the conveyance to the grantee (i.e., the bank) shall become null and void.
A mortgage only creates a lien on the property. That means that the property remains subject to judgment liens and other legal claims. Because of this, in the 1800’s lenders started insisting on getting an absolute conveyance from the borrower in the form of a warranty deed, and giving back to the borrower a “bond for title” agreeing to reconvey the property to the borrower when he or she paid off the debt. Years later, the warranty deed and bond for title became one instrument.
Real Estate Purchase Documents
When you borrow money from the bank (or other lender) to buy your home, you sign a lot of papers. One of these is a “promissory note.” The Promissory Note is a contract between you and your lender, in which the lender promises to loan you money, and you promise to pay the money back under certain terms and conditions.
Your home is the most important purchase you will ever make. Be sure that you understand the documents you are signing and what your rights are.
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