BONDS AND MORTGAGES 1. Use of the bond and inortgage.—When real property is given as security for the payment of a debt or obligation, the instrument used for the pur pose of transferring the title to such property as se curity is called a mortgage. The debt itself is usu ally evidenced by a bond or note. In New York, the principal instrument used in connection with a mort gage is the bond. In some other states it is a note, or a series of notes. Immediate title to land is not transferred by a mortgage. The transfer is merely potential. Possession of the property is usually re tained by the mortgagor or his successors.
Before modern method was adopted, the lender got actual ownership together with the right of pos session. The borrower retained only a right in equity to redeem his land upon payment of the debt and this interest in the property was known as the equity of redemption.' Under modern conditions, that term continues to designate the interest of an owner in his land, over and above the interest of the mortgagee. Under the various Land Title Acts in Canada the legal title to the lands is not transferred, but the land is charged with the payment of the mort gage money.
A mortgage is personal property and if taxed, is taxed as personal property. It passes from one holder another by assignment and delivery and not by deed. Because it is a chattel interest and a lien upon the land and not an immediate transfer of the title, there may be not only a first mortgage but also a second, a third, as many, indeed, as the owner may be able to obtain. Each mortgage takes its rights in the order of precedence, the subordinate or junior being subject to the rights of the senior or prior mortgages.
2. Form, of form of bond in use in New York is as follows: 3. Provisions of the bond.—The bond contains the names of the parties to it, one person or several per sons described as obligor, or obligors, acknowledging himself or themselves to be indebted to some other person, or persons, described as obligee, or obligees, for a definite sum in money. The obligor covenants to repay the sum on a definite date as well as interest computed from a given date at an agreed rate and payable at certain fixed times. The last part of the
bond contains a reference to the mortgage collateral to it, makes the agreements and covenants in the mortgage part of the bond, and provides that the whole debt may become due at the option of the obli gee, upon default in the payment of interest for thirty days, or upon default in the payment of taxes or assessments upon the mortgaged premises for thirty days. The instrument is dated, signed, sealed and witnessed, and often acknowledged.
If there is more than one obligor, the words "jointly and severally" are inserted in the blank space follOwing the words "to be." The holder of the obligation can then enforce payment of the entire amount against all or any one of the obligors. Each person signing the bond incurs a personal liability for the payment of the whole debt.
Bonds are frequently written for twice the amount of the principal. The amount so fixed is known as the penalty or "penal sum" of the bond. It creates no obligation to pay more than the true amount of the debt. In fact, such a bond will contain a pro vision that if the real debt and interest is paid, the bond is void. The principal sum in the bond repro duced above is mentioned as being "lawful money of the United States." In some cases, especially when the mortgage secures an issue of bonds to be sold to investors, payment is required to be made in "gold coin." The principal sum is payable on a definite date. The obligor has no option of prepayment unless the bond specifically provides for payment "on or be fore" the specified date or contains a special clause to the effect that the obligor has the privilege of pay ing the sum before maturity. It should be noted, however, that in the usual first mortgage made for investment of funds the privilege of prepayment is not customary. The lender dictates the terms, and he may wish his money to be placed and drawing in terest, so that the investment may not be disturbed. When the privilege of prepayment is granted, provi sion is often made that interest shall be paid on a date subsequent to the date of payment of the principal. This is not usury, but a price paid for the privilege of paying off the debt before the due date.