Commercial Real Estate - Mortgage and Forms of Transfer of Interest

A mortgage exchanges an interest or collateral in a piece of real estate for a loan to purchase the land. The lender is the mortgagee and the debtor is the mortgagor. This transaction is one that provides a secured interest to the mortgagee because if default occurs there can be foreclosure. If you are faced with commercial real-estate issues, it is a good idea to consult an attorney. A real-estate lawyer is an excellent resource for commercial real-estate information.

Foreclosure

Foreclosure can occur when the mortgagor fails to make payments on a mortgage agreement. At the point of default, the mortgagee can resort to an acceleration clause that allows, upon default, for the entire debt to be paid at once. If the debt is not paid the mortgagee can take title to the real estate. State law often governs foreclosures. Some states allow for a grace period before foreclosure proceedings are instituted, while other states curb acceleration clauses and allow late payments.

Title: Lien or Title Model

To obtain complete ownership of a property, a person must have title to the real estate. Title confirms ownership in property and also serves as documentary evidence. The form of title depends on the state where the real estate is located. Most states follow the lien theory, where the mortgage resembles a lien on the property. The mortgagee only acquires a lien on the property and the actual title stays with the mortgagor unless a valid foreclosure occurs. Under the title theory a lender retains title to the real estate. This provides a measure of security for the lender in the event of a foreclosure because title to the property has never been placed with the purchaser.

Deeds: General Warranty Deed and Quitclaim Deed

Deeds are written documents that transfer titles in real estate. Transferring title means that ownership is given up by one party and retained by a new party. There are two main forms of deeds: general warranty deeds and quitclaim deeds. The general warranty deed provides that the property being transferred is unencumbered and without liens. This is the safer form of deed because it both ensures that the title is clear and offers specific remedies for the buyer. Remedies include money damages against the seller.

The quitclaim deed is less secure. This deed may provide clear title or it may not. There is no promise or guarantee made by the seller that the title is clear of liens or encumbrances. This deed merely relinquishes any interest that the seller has in the property, however small.

Conclusion

The mortgage is the most common means of financing the purchase of real estate. The mortgage, however, is not the only consideration that should be made when buying a piece of property. The deed and clarity of title should also be scrutinized. A buyer wants the most protection possible in an investment and there are forms of title that may be too risky. Title insurance should be considered as an added protection. If you have concerns about your potential commercial real-estate transaction, it is wise to consult with an experienced attorney.

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