A mortgage is an interest in land created by a written agreement to provide security for the performance of a duty or payment of a debt. In a “mortgage or title” state, the mortgage operates as a conveyance of the legal title to the property to the mortgagee. In a “lien” state, the mortgage is a pledge of the title to the property but is not regarded as an actual conveyance of the title. There are a variety of mortgage options available to borrowers, as shown below. From an insuring standpoint, the mortgage creates a lien on the real property which must be satisfied of record at the time the loan is paid in full. If a mortgage is not properly satisfied of record, statutory provisions exist which limit the duration of the lien from the specified date of maturity (e.g., five years) or, if no maturity date exists, from the inception of the mortgage (e.g., 20 years). Duration of mortgages is determined by state statute.
A lender making a loan to finance the purchase of real property will generally want a loan policy showing that the lender’s lien is in first position or has superior priority. Any prior or intervening liens must, therefore, be satisfied and released or subordinated to the lien of such mortgage. Intervening or prior liens not released or subordinated must be shown as exceptions to title.