Property deeds are very important in the real estate market, as they confer ownership of a house or real estate property from the owner to the seller. There are several different types of deeds, usually distinguished between the purposes of the buy; is the buyer making the purchase for a business, or as an individual consumer? Deeds have historical relevance, as various methods were historically used to officially confer ownership of a property to a new owner. Deeds must have several elements to be legally binding (Folger, 2011). They must be in writing to be official, as verbal sales of property cannot be considered legally binding. Grantors, or sellers, must have the legal capacity to sell to begin with. This means, clearly, you cannot sell a property you do not legally own. Furthermore, both the buyer and the seller must be legally capable of arranging the transaction; they must be judged to be competent, as it is illegal and unethical to force someone to make the sale if they are mentally incapacitated. Anyone capable of forming a legal contract is considered capable of a transferring ownership of a deed.
The document must have specific language that identifies who is buying and selling the property. The property must be described adequately in the document, including the specifications of size, design, and location. The language of the document must specifically include language that designates the property is changing hands, meaning it must be direct and concise. The deed must be signed by all parties involved, usually just the owner or the seller, unless there is a party acting on behalf of one of the groups. Furthermore, the contents of the deed must be accepted by the buyer.
Deeds are very important to both the owner and the seller, as it shifts ownership and liability. Upon acceptance of the deed, the buyer must pay the seller for the property, making him criminally liable if he does not. The buyer also assumes responsibility for the property, and the deed is very important in showing outside parties that the buyer does in fact own the property. This affects the banks who issued the mortgage, as it entitles them to seize that specific property if the buyer defaults on his/her house payments. Therefore, the transferal of a deed typically increases the risk that a third party such as the bank can seize the house. A deed is also very important to the real estate agent who receives commission based on the sale of the house, if a real estate agent is used to help sell the property.
There are many notable advantages of using deeds to formalize real estate purchases. The biggest one is that because it requires acknowledgement from both parties, it prevents fraud and helps eliminate wasteful lawsuits. It also helps prevent people from stealing the land owned by other people, as the deed must explicitly mark the area of land that each property owns. Though this is an important clause in property law, disputes do occasionally arise when surveyors do not properly mark and designate the lands to which each individual property belongs; indeed, one of the most common law suits brought up against multiple parties is that the deeds between the parties claim land on the other side of their understood property line.
There are not really any serious disadvantages with deeds, but a few notable exceptions do come to mind. For instance, current property owners are not legally protected by the deed for issues that occurred when the previous owner owned the property, such as the aforementioned mix-up of two separate deeds claiming the same property (Deeds, n.d.). This also ensures title examiners must be used to examine the documents, making resolution a very expensive process to work through. Other types of deeds have a few disadvantages. Quitclaim deeds do not protect the seller form certain financial responsibilities, especially if the seller is a co-financer of the mortgage loan (Deeds, n.d.). Special warranty deeds do not provide a significant amount of protection for the buyers of the property, in regards to disputes among third parties and the previous owners. Therefore, while deeds are the most efficient way to confer legal ownership, they do not always provide adequate protection.
Mortgages are issued through credit institutions, such as banks, for the purpose of financing a housing purchase by buyers, either businesses or individuals. Mortgages are composed of several different parts: collateral, principal, and interest. The collateral aspect of the mortgage involves putting up an asset to be lost in case the home owner defaults on the loan; in cases regarding mortgages, the collateral is always the house being purchased (Colley, 2014). The principal part of the mortgage is the amount originally requested to be loaned from the bank, and the amount received to purchase the house. The principal, of course, must be paid back in full. The interest is the amount that the bank essentially charges for borrowing its money for an extended period of time. Interest accrues over time, and it must be paid back in full along with the principal. Different mortgage loans have different terms and conditions, and some prevent the home owner from repaying the principal early. This is because the bank wants to collect its full amount. Mortgage rates are influenced by the housing market, and the monetary policy conducted by the central banks. In fact, the housing bubble caused in 2008 was a direct response of banks creating insolvent loans and expecting to foreclose for a profit, demonstrating the impact of mortgage rates over the economy.
If a buyer defaults on the mortgage, the bank has the right to take the house away from the owner through a process called foreclosure. Mortgages are extremely important to lending institutions, because they help ensure that the banks receive a steady stream of profit over a significant period of time. While it takes many years for a mortgage to be repaid in full, it is among the primary sources of income for some banks. Mortgages are also crucial for buyers, as financing a home purchase would be almost impossible without mortgage opportunities.
Mortgage requirements are very interesting. Buyers are usually required to place a down payment, and the more money they put on the table, the stronger the loan is considered to be (Regehr, 2015). This is because banks value customers with more money, as it is usually a sign of higher income, which implies that the bank will have no problem collecting mortgage payments. Also, almost all banks require the home owner to maintain home insurance, so that if the house catches fire or some unlikely external event does occur, the bank will still have an asset to foreclose on in order to protect the bank’s investment. These rules place a substantial burden on the part of the home owner, who not only has to make the payments on the mortgage, but also pay insurance costs, taxes, utility bills, etc.
The advantages to mortgages are endless. They provide a source of financing for home owners seeking to starts a family or live in a certain area. However, because the banks often want reassurance that their income and asset is secure, the banks place a significant financial burden on the home owner, which can complicate the finances of the owner.
Works Cited:
Folger, J. (2011). Understanding property deeds. In Investopedia. Retrieved from http://www.investopedia.com/articles/realestate/12/property-deeds-and-real-property.asp
Deeds, T. E. Real estate deed advantages and disadvantages. Retrieved June 19, 2016, from deed.com, https://www.deeds.com/information/real-estate-deed-advantages-and-disadvantages-1316732204.html
Colley, A. (2014, January 23). Mortgage basics: What is a mortgage? - finance. Retrieved June 19, 2016, from Buy, http://www.realtor.com/advice/finance/mortgage-basics-what-is-a-mortgage/
Regehr, R. (2015, July 28). Mortgage advice & articles. Retrieved June 19, 2016, from Mortgage, https://www.lendingtree.com/mortgage/minimum-mortgage-qualifications-article
