When you’re applying for a mortgage loan to buy a home, it’s important to understand the key roles in the lending process. Two terms you’ll encounter are mortgagor and mortgagee. Knowing the difference between these two parties in a mortgage transaction will help you grasp your responsibilities as a borrower.
What is a Mortgagee?
The mortgagee is the lender that provides the loan funds to the homebuyer, also known as the mortgagor. The mortgagee can be a bank, credit union, online lender, or other financial institution.
As the entity financing the purchase the mortgagee has a few core responsibilities
- Evaluating loan applications and deciding whether to approve the mortgagor
- Conducting credit checks and assessing the mortgagor’s finances
- Disbursing the loan funds to escrow once approved
- Collecting the mortgagor’s mortgage payments
- Managing escrow accounts for taxes and insurance (if applicable)
- Taking legal action if the mortgagor defaults, including foreclosure
Essentially the mortgagee fronts the money for the property purchase. In return the mortgagor makes monthly payments over an agreed term, typically 15 or 30 years, until the loan is fully repaid.
The mortgagee retains a security interest in the home. If the mortgagor fails to make payments the mortgagee can foreclose and take possession of the property to recoup the outstanding loan balance.
What Rights Does the Mortgagee Have?
To protect itself in case of mortgagor default, the mortgagee has certain rights and protections written into the mortgage contract:
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Perfected lien: Gives the mortgagee a legal claim on the property to facilitate foreclosure if needed. This lien is recorded with the county clerk.
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Title interest: The mortgagee appears as an additional owner on the property title until the loan is satisfied. This further solidifies their rights in case of default.
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Right of foreclosure: If the mortgagor misses payments, the mortgagee can begin foreclosure proceedings to seize and sell the home to recover the unpaid balance.
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Right of assignment: The mortgagee can transfer servicing rights and ownership of the mortgage loan to another entity, such as when mortgages are bundled and sold to investors as securities.
These provisions safeguard the mortgagee’s financial interest and ability to recoup their investment if the mortgagor fails to repay as agreed.
What Types of Loans Do Mortgagees Offer?
Mortgagees provide a range of loan options for potential homeowners. Some of the most common mortgage products include:
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Fixed-rate mortgages: The interest rate and monthly payments remain the same for the full loan term. This provides predictable, stable payments.
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Adjustable-rate mortgages (ARMs): The interest rate starts lower but then adjusts periodically based on market rates. Monthly payments fluctuate accordingly.
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FHA loans: Insured by the Federal Housing Administration and require a low down payment of just 3.5%.
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VA loans: Provided to eligible military members and veterans. No down payment is required.
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USDA loans: Offered in rural areas and also require zero down payment.
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Jumbo loans: For pricier homes above conforming loan limits. A larger down payment is typically needed.
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Construction loans: Short-term financing to build a custom home. You make interest-only payments until the home is move-in ready.
The mortgagee assesses factors like your finances, credit, and the property itself before determining which loan programs you may qualify for.
What are the Mortgagee’s Closing Duties?
At closing, the mortgagee has a few key duties to finalize the real estate purchase:
- Review the purchase contract, title commitment, appraisal, and other documents
- Collect necessary funds from the mortgagor, including the down payment and closing costs
- Provide a closing disclosure detailing final loan terms and costs
- Disburse loan proceeds to the settlement agent to pay the seller
- Ensure any conditions are met and sign closing documents
- Record the deed and mortgage documents with the county to secure their lien position
Completing these closing tasks allows the mortgagee to fully execute the loan while also protecting their own interests in the transaction.
Can a Mortgagee Take Possession of the Property?
A mortgagee can take possession of a property through foreclosure in the event the mortgagor defaults on the loan.
The foreclosure process allows the mortgagee to recover the outstanding loan balance by taking ownership of the home and selling it. However, foreclosure can be a lengthy legal process. Steps may include:
- Issuing a demand letter and right to cure notice giving the mortgagor a chance to become current on payments
- Filing a lis pendens with the county clerk indicating foreclosure proceedings have begun
- Obtaining a court order allowing the foreclosure sale to proceed
- Scheduling and advertising the public foreclosure auction
- Requiring competitive bidding at the auction, with the mortgagee having the right to enter the first bid up to the loan balance
- Taking title possession of the home if no third-party buyers step in with higher bids
- Evicting the former mortgagor still occupying the property
Fortunately, many mortgagees are willing to work with borrowers who experience financial hardships to avoid foreclosure. This may include mortgage modifications, repayment plans, forbearance agreements, and other options to help reinstate loans and allow mortgagors to keep their homes.
Can a Mortgagee Sell the Mortgage to Another Lender?
Yes, it’s common for original mortgage lenders to sell mortgages on the secondary market. The purchasing entities may include:
- Government agencies like Fannie Mae, Freddie Mac, and Ginnie Mae
- Institutional investors
- Investment banks that bundle mortgages into asset-backed securities
Selling the mortgages provides extra revenue for mortgage lenders while shifting the risk. However, even after selling the mortgage, the original mortgagee remains legally responsible for various duties like collecting payments and releasing the lien upon payoff.
The right to assign mortgages is included in the initial loan documents signed by the mortgagor. While servicing rights may be transferred, the mortgagor’s responsibilities and loan terms generally remain unchanged.
The Bottom Line
In a nutshell, the mortgagee is the lender that provides financing for a home purchase, while the borrower is known as the mortgagor. This key lending relationship carries certain rights and duties for each party. As a mortgage applicant, it’s helpful to understand these roles before signing on the dotted line. Being an informed and responsible mortgagor can lead to a smooth closing and setup for mortgage success.
How a Mortgagee Works
Most people take out a mortgage to finance the purchase of a residence or commercial building. In order to limit its risk in the investment, the lender in the transaction creates a priority legal interest in the value of the property, substantially lowering the probability it, the mortgagee, will not be repaid in full if the borrower defaults on the loan. This is done through a perfected lien and title ownership.
A mortgagee represents the interests of the lending financial institution in a mortgage deal. Lending institutions can offer a variety of products to borrowers, representing a significant portion of loan assets for both individual lenders and the credit market overall.
What Is a Mortgagee?
A mortgagee is a lender: specifically, an entity that lends money to a borrower for the purpose of purchasing real estate. In a mortgage transaction, the lender serves as the mortgagee and the borrower is known as the mortgagor.
- A mortgagee is an entity that lends money to a borrower (also known as a mortgagor) for the purpose of purchasing real estate.
- In order to limit its risk, a mortgagee creates a priority legal interest in the value of the mortgaged property, allowing it to seize it if the mortgagor defaults on the loan.
What are Mortgages? | by Wall Street Survivor
FAQ
Who is considered the mortgagee?
Is the mortgagee the lender or borrower?
Who is the mortgagee holder?
Is the mortgagee of a mortgage the owner of the property?
Who is a mortgagee & a mortgagor?
They’re the ones applying for a home loan in the hopes of securing financing and making a home purchase. As mentioned earlier, the mortgagee is the lender. Assuming the borrower’s loan application is approved, the mortgagee is the one providing the mortgagor (the borrower) with the funds to finance their home purchase.
Is a mortgagee a person?
Unlike an employee, escapee or trainee, a mortgagee is not a person. Instead, a mortgagee is the bank or credit union that loans money for the purchase of a home or property and holds the property title until the loan is paid off. The person who borrows the money — that is, the homebuyer — is the mortgagor.
Who is a mortgagee in real estate?
Who Is the Mortgagee? The mortgagee refers to the bank, financial institution or private mortgage lender that lends money to a borrower to purchase or refinance a home. They hold a legal interest in the property as collateral for the loan until it’s fully repaid.
Is a mortgagor a lender or a borrower?
From that perspective, you might assume that the mortgagor is the one giving the loan to the mortgagee. And that would be a pretty sensible assumption. But as we now know, that’s not the case. It’s actually just the opposite: The mortgagor is the borrower, while the mortgagee is the lender.