The purchase-money mortgage to be given back by the purchaser to the seller.
15. Earnest money.—In discussing the parties to the contract we noticed that the seller had reason to require the purchaser to make a payment of earnest money when the contract was signed. The purchaser would desire that the payment be as small as possible. He may not know that the seller is of sufficient finan cial responsibility to insure the return of his payment in case the title to the property proves to be bad or unmarketable. No absolute rule as to the amount of this payment can be laid down. It is rarely more than ten per cent of the purchase price, and frequently five per cent or less. Sometimes when the seller is as cured of the purchaser's financial reliability, a nominal amount, or nothing at all, is paid on the contract.
16. Cash payment on delivery of no mortgages are involved, this amount may be the dif ference between the gross price and the amount of earnest money paid, or it may be the gross price after deducting earnest money and the third and fourth di visions of the price referred to hereinafter, or either of them.. The printed form given on page 218 requires payment in cash, i.e., in legal tender money. While it is customary for the seller to accept payment of this amount in a certified check, the contract should pro vide for cash as this leaves the acceptance of a certi fied check optional with the seller. If the words "cer tified check" were used they would include a check drawn on and certified by any banking institution, even a small one in an obscure town. The seller should reserve the privilege to require cash when the deed is delivered, or to waive it and take payment in another form if he wishes to do so.
17. Property taken subject to we express the gross price in our contract, the amount of the existing mortgage subject to which the property is sold must be stated as a payment of part of the pur chase price. The price and the first three divisions may read thus: From the seller's point of view the statement of the mortgage as given above is satisfactory. The pur chaser, however, may want to know something about the terms of the mortgage. Unless the terms are stated in the contract he would have to take title re gardless of what those terms were. It is therefore
often necessary to make the clause read : Twenty-five thousand dollars by taking the property sub ject to a mortgage for that amount now a lien thereon be coming due (here insert due date) and bearing interest at the rate of per cent per annum.
If the mortgage were to become due at an early date the purchaser might not want to take the property and assume the risk of having to replace the mortgage soon after becoming the owner. On the other hand, he might be buying the property for the purpose of con ducting a building operation. In that case he would not wish to take the property with a long-term mort gage unless there was a privilege of paying it before maturity. Many purchasers like to have the mort gages on their property held by one of the well-known mortgage companies or savings banks, and if the prop erty has been represented as being mortgaged to such an institution he may require that the name of the holder of the mortgage be added to the foregoing clause.
The interest of an owner in real property which has been mortgaged is called the equity. In the case de scribed it is really this equity that is being sold. The purchaser under such circumstances does not become liable personally for the payment of the mortgage debt, altho the property he has bought can be held for it unless he has agreed to assume the mortgage. He may lose the property if there is a default in the payment of interest on the mortgage, but he cannot be held personally liable for a deficiency if the prop erty does not sell for enough on foreclosure to pay the claim of the mortgage.
18. Assuming the mortgage.—The holder of a mortgage has the right not only to hold the property as security for the payment of the money he has loaned, but also to hold the maker of the bond, given in connection with the mortgage, personally liable for the debt. The seller, who is thus personally liable, may require as part of the bargain for the sale of the property that the purchaser not only take the prop erty subject to the mortgage, but that he assume pay ment of it. In order to provide for this in the con tract, the following is added to the clause describing the mortgage given in the preceding paragraph.