What is a mortgage?

A mortgage is an accepted legal recourse wherein a person makes his personal (movable) or real (immovable) property as a security to a loan so that, if the person who obtained a loan (the mortgagee) fails to do his part, the person against whom the money is borrowed (the mortgagor) may take the collateral at his own disposal provided that the mortgagee’s right to redemption is satisfied.

A mortgage may be a chattel or real estate. A mortgage is a chattel if the collateral made as security is a movable property just like vehicles for instance. A mortgage is likewise real estate if the collateral that is made as a security to a loan is an immovable property; take lands for instance.

Mortgage is a recognized scheme and is identified by law as a mode of securing an obligation in cases where forbearance of money is involved. The mechanism of a mortgage is intended to protect the person who lends money from fraudulent borrowers. With this type, the mortgagor is protected from fraud because even if the person who borrowed money absconds, he is still protected by the collateral which ideally has a higher value than the money borrowed.

How should a mortgage be done?

To start a mortgage, the parties referred to as the mortgagor (the party who lends) and the mortgagee (the party who borrows) must execute a Deed of Mortgage signifying the party’s intention to enter into such agreement. The deed must be notarized and duly signed by the parties and the (disinterested) witnesses. After which, it shall be signed by a lawyer- notary public. Copies of the newly notarized deed shall, as a matter of procedure, be furnished to the parties, witnesses and the notary public notarial register filing. With this, the parties are bound to do their part of the bargain. Once the mortgage deed is good to go, it should be registered to the Registry of Mortgage so that an annotation/ encumbrance shall be placed at the back of the Torrens title in cases of real estate mortgage or at the back of the Certificate of Ownership of a vehicle for instance if it is a chattel.

The reason for this mandatory registration is to protect future buyers from buying encumbered properties. The encumbrance will only be lifted if the mortgagee has satisfied his obligation through payment. If this is the case, the mortgagor is bound and mandated by law to return the collateral to the mortgagee. Failure to return the collateral will open a case foe Estafa against the mortgagor.