Liens, Grantors, Grantees, Mortgagor, Mortgagee.........

Another blogger reading my last post, Why Should You Understand Terms a Realtor Uses?, suggested I should write a post on SHORT SALES since it is a term used quite often these days in the news. In order to write such an article, I think there are a few other ideas I should write about first to make the idea of a short sale clear.

Since I am writing about real estate, I will address the idea of a mortgage. First and foremost, a mortgage is a lien. Of course, the next question is: what is a lien? A lien is a right to retain the lawful possession of another's property until the owner of the property fulfills a legal duty or obligation. In the case of a mortgage, the legal obligation is to pay off the loan. When the loan is paid off, then the lien/mortgage/obligation is removed from the property.

To start at the very beginning, when you buy a property, you receive something called a deed. Most of us understand what a deed is, but just in case you are completely new to buying real estate I will explain. A deed is a legal instrument, which gives you title to or ownership of a property. The grantor (seller) signs the deed to you, the grantee (the buyer). In exchange, you pay some consideration to the grantor for that property. The grantor "gives" you or conveys the property and title to the property to you with a deed for this exchange.

In the same way, when you borrow money from a lender to buy the property, the lender will require you to sign two legal instruments. The first of which is a NOTE. The note is the promise to pay the loan or debt back and spells out the terms upon which you will pay the lender back. The second legal instrument is the mortgage.

Now, the idea of the mortgage is often confused. You actually give the mortgage/lien against your property to the lender in exchange for the money you are borrowing. You are paid for this lien. Thus, you are the mortgagor and the lender is the mortgagee. Think of it in the following way: the "OR" has the thing of value and the "EE" has the money to buy either the whole of the property or interest in the property. Therefore, the grantor owns property and is willing to take the money or some other consideration from the grantee in exchange. Likewise, the mortgagor has property and is willing to sell off an interest in the property in exchange for money. The mortgage or lien is the interest another party has in your property in exchange for something of value, which is usually money.

Thus, you, the grantee now own property, but also have a lien against the property in the form of the mortgage. Therefore, you cannot sell the property without satisfying the lien holder (in this case, the mortgagee). So, when you go to sell the property, you must completely pay off the mortgage before conveying your title to the property to a new owner. Of course, there are exceptions to this idea, but in general terms, this method is how it will work with the normal residential transaction. There are places where buyers/grantees will take a property with existing liens; it is not the usual circumstance, however.

I believe the idea of giving a lien or mortgage to the lenders gets confused, because the lender prepares the actual document. Very simply, they are not going to agree to lend you the money unless you sign "the document", which legally covers their interest.

Of course, this explanation is oversimplified, and anyone, who has signed a mortgage and note knows that it seems like endless pages to sign and initial. I have tried herein, however, to explain, at the most basic level, the documents/instruments involved in a residential real estate transaction and the meaning of these documents/instruments in the same transaction.