WHAT IS A MORTGAGE?

1

• WHAT IS A MORTGAGE?
• NON-POSSESSORY PUBLIC PLEDGE OF RESIDENCE
• ACCESSORY TO LOAN
• CREDITOR PRIORITY OVER UNSECURED CREDITORS AND
• LATER SECURED CREDITORS
• PREVALENT FORM OF HOUSING FINANCE
• IN DEVELOPED ECONOMIES

2
WHY IS MORTGAGE IMPORTANT? HIGHER LOAN
AMOUNTS COLLATERAL LOWER INTEREST
RATES MORE LENDING
3

• WHAT IS THE PROBLEM?
• DELAYS IN REALIZATION OF COLLATERAL
• EXPENSE
• LOST PRINCIPAL AND INTEREST
• PROPERTY DETERIORATION
• LACK OF CERTAINTY REGARDING PROPERTY RIGHTS AND
  PRIORITIES NO REGISTRATION SYSTEMS

4

• PREREQUISITE REGISTRATION
• ASSURANCE OF THE OWNERSHIP RIGHT
• (RIGHT TO MORTGAGE)
• IDENTIFICATION OF CONFLICTING INTERESTS
• ASSURANCE OF MORTGAGE PRIORITY
• A MAJOR BARRIER IN EMERGING MARKETS

5

• DIFFERENCES AMONG LEGAL SYSTEMS?
• SOME SUBSTANTIVE AND PROCEDURAL DIFFERENCES
  BETWEEN CIVIL AND COMMON LAW SYSTEMS
• ARE THE DIFFERENCES MATERIAL?
• EFFICIENT MORTGAGE ENFORCEMENT IS FOUND IN BOTH
  COMMON AND CIVIL LAW SYSTEMS
• AS MUCH VARIATION WITHIN SYSTEMS AS BETWEEN
• TECHNICAL LEGAL DIFFERENCES PROBABLY LESS
  IMPORTANT THAN CULTURE AND JUDICIAL ATTITUDES

6

• MORTGAGE ALTERNATIVES
• MORTGAGE BY DEED, LEASE-PURCHASE, INSTALLMENT
  SALE
• CREDITOR HAS LEGAL TITLE AVOIDS COMPLEXITIES OF
  MORTGAGE LAW
• DEBTOR MAY LOSE ALL PROTECTIONS OF MORTGAGE LAW,
  INCLUDING RIGHT OF REDEMPTION DEPENDS ON THE
  COURTS
• ARE THEY USEFUL? ONLY IF YOU DONT HAVE A GOOD
  MORTGAGE LAW

7

• RELATED DEVICES
• LAND CHARGE
• MORTGAGE NOTE/CERTIFICATE
• BENEFIT EASE OF TRANSFER AVOID REGISTRATION
  COSTS AND DELAYS
• AN ISSUE MOSTLY IN TITLE REGISTRATION SYSTEMS

8

• PROCEDURAL ISSUES
• NON-JUDICIAL ENFORCEMENT - ARGUABLY THE SINGLE
  MOST IMPORTANT STEP TOWARDS EFFICIENCY
• CAN NON-JUDICIAL ENFORCEMENT BE WELL REGULATED?
• MOTIONS, CONTINUANCES, AND APPEALS
• STATE AND COURT ORGANS OF EXECUTION

9

• ALTERNATIVES TO ENFORCEMENT
• FORBEARANCE
• GUARANTEE
• COMMON MORTGAGE
• INSURANCE?

10

• MINIMIZING ENFORCEMENT
• UNDERWRITING
• DISCLOSURE
• HOUSING COSTS

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CREDITORS CHECKLIST

• Flexible Legal Concept
• Efficient and Cost Effective Creation
• Broadly Defined Obligation
• Good Registration System and Procedures
• Transferability
• Bankruptcy protections

• Enforcement
• Avoid Courts
• Simple prima facie case
• Negotiated acquisition
• Negotiated sale
• Clear and realistic pricing formulas, limited
  liability
• Limited judicial discretion
• Limitations on appeal
• Quick possession

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DEBTORS CHECKLIST

• Transparency of transaction
• Reasonable costs
• Sale, refinancing, prepayment
• Notice and cure period
• Rights of appeal
• Possibility of forbearance

• Protection of investment
• Price Maximization
• Market based pricing
• Official oversight
• Right to object
• Penalties for unfair pricing
• Low execution costs
• Accounting