Mortgages & Liens – How They Work
What is mortgage?
According to the New South Wales Land Registry Service, “A mortgage is a transfer of the legal estate in land for the purpose of securing a debt.” Mortgage provides security to the lending party, as if the borrowing party is unable to repay the obligations owed, the lender has the right to seize the property until the debt has been paid. Lenders are often banks or other financial institutions. The borrowing party must repay the debts they owe, or risk having their property seized.
What is a lien?
A lien is an agreement made between the lending and borrowing parties that states that if the latter is unable to pay back the former, they are legally required to relinquish their property until the debt is paid.
The owner of the property is called the lienee, and the one receiving the benefits of the lien is often called the lienor or the lien holder.
As a side note, liens can only be applied on physically transferrable property such as cars and houses, and like mortgages, they are only lifted once the debt is completely repaid.
There are 4 types of liens:
A statutory lien is made by law and does not require the consent of the debtor.
A contractual lien comes into effect once a contract is signed between the lending and borrowing parties. The contract needs to stipulate the obligation owed and the objects that will be transferred, so that the lien can take effect.
A common law lien arises from the implication of law, and is divided into two subtypes, specific and general. Specific liens secure the obligations that are due before a particular transaction or work commences on an item. General liens secure the obligations due on a general account.
An equitable lien can be imposed by a court to uphold fairness. For example, if one party has spent money and resources to enhance an object on behalf of another party, they may be granted an equitable lien until the debt is repaid.
What you should do:
It is advised that you conduct your research before applying for a mortgage or a lien. This way, you can make the most informed choices and avoid being overcharged.
When choosing the most suitable properties and brokers, it is imperative that you conduct ample research to find the most appropriate option that aligns with your income and budget. Keep in mind that not all brokers offer the same contracts, and many can have hidden fees.
If you ever have trouble dealing with mortgage contracts or repaying debt, then be sure to contact your friendly property lawyers here at Wainwright Legal to help you resolve your queries.