Owners holding morgages ?

In this thread I explained what I was going through with the house I’m renting right now.

My landlords are thinking about holding the mortgage for us, I’m wondering what I’m supposed to do next if they agree to it. I’ve never owned a home before and I know nothing about mortgages. On the net I can’t seem to find anything about owners holding mortgages.

Are there certain things I need to know ?

Help !!!

The following is not intended as legal advice and is not a substitute for consultation with an attorney. If you have specific questions, contact a lawyer.
Sure, the owners can hold the mortgage. It’s no problem and no big deal. Another alternative would be to purchase the property under a contract for deed (if it’s available in your jurisdiction): basically, you make payments until you’ve paid off the price and then you recieve the deed to the property.

Either of these options involves a good bit of paperwork and some specialized types of agreements. This is NOT something you want to do on the cheap out of a bookstore be-your-own-lawyer workbook. Shop around for a real estate attorney with residential transactions.


Of course if the present owners hold the mortgage, they are no longer the owner. You are.

The basic difference between buying the property and giving the seller a mortgage on it and buying it under contract is that in the former, you are the owner; whereas, in the latter, title remains in the seller until the purchase price is completely paid. Moreover, under a contract, there usually is no deposit, or if there is one, it is less. The mortgage transaction is called a purchase money mortgage. You may want to search the web under that term.

For completeness, I hasten to add that title is passed by the deed, which is issued contemporarily with the mortgage but not issued until the contract is fully paid.

Yes. Talk to a local real estate lawyer. Seriously! They’re not that expensive.

That’s dependent on the state – some states consider the holder of the mortgage the owner. (I have no idea which ones.)


If you have no idea which one or ones, how can you make that statement? I don’t know the property laws of all the states so I cannot categorically deny that, but I sincerely doubt it. I’ve examined title to real estate in various states and never ran across that. A mortgagee is a lienholder. If the lien and the title are in the same entity or person, the lien merges into the title and there is no lien.

I think I’m gonna go with Cliffy on this one. As I recall from my real estate class, there are “title theory” states and “lien theory” states. I can’t remember what the practical difference is, but, as I recall, it can make a difference under certain circumstances.

lucwarm and cliffy are right on that one. Jurisdictions differ on whether a mortgage gives the mortgagee a title or a lien on the mortgagor’s property.

There is a form of mortgage (remember, “mortgage” means “dead pledge”) called a trust deed. At one time in Illinois, a TD would convey title (theoretically) to the “trustee,” but that was changed many years ago. To release the trust deed, it was necessary to execute a “release deed,” not a “satisfaction.” However, as I said, that was many years ago.

So, it’s possible that some states still follow that law which has long been obsolete in Illinois. The general rule is that the lesser merges into the greater. So if you have a lien on a piece of property, and later acquire title to the property, the lien merges into the title. If there are some states that follow the “title” theory of mortgages, then the mortgagee does not have a lien, of course, since he has the title. I don’t know of any states that still follow this.

Lien theory is the general rule nowadays in most states, mortgages as conveying fee simple defeasables (ye old common law rule) or deeds of trust are rare. As of around 1999 (according to Ann Burkhart in Missouri Law Review), title theory was still the rule in Alabama, Connecticut, D.C., Georgia, Maine, New Hampshire, Rhode Island and Tennessee. The law was unclear as to whether the state was title theory or not in six more states: Arkansas, Maryland, Massachusets, North Carolina, Pennsylvania, and Virginia.