Mortgaged Property

• When a property is mortgaged, it means that the property's owner has transferred some part of his ownership interest to another party (a creditor) in order to secure debt owed to that party. In the event that the property owner fails to repay his debt, a mortgage allows the creditor to take control of the property. Although certain elements are common to all mortgages, mortgages may have extremely individualized rules created by the terms of the mortgage agreement.
  
  

Property Transfers

• In a mortgage, the party who owes the debt is called the "mortgagor." The mortgagor can still transfer his property even though the property secures a mortgage. Some mortgages specifically grant the mortgage-holder (the "mortgagee") the right to object to transfer of a mortgaged property. However, if the mortgage has no such language, the mortgagor can transfer the property without the mortgagee's consent.
  
  

Subject To

• In a typical transfer of property with a mortgage, the owner sells the property and conveys a deed to the new owner. Depending on the language in the deed (or a related real estate contract), the new owner may take the property "subject to" the mortgage. This means that the mortgage remains on the property despite the transfer, but the new owner is not personally responsible for the debt. The old owner remains responsible for paying off the mortgage. The mortgagee may still take the property from the new owner in foreclosure, but the property is the extent of the new owner's responsibility for the debt.
  
  

Assumption of Mortgage

• In some real estate transfers, the deed or contract may stipulate that the new owner assumes the mortgage. Assumption of the mortgage makes the new owner the first party liable for the debt. The previous owner typically remains liably as surety, or guarantor, of the mortgage if the new owner fails to pay. However, explicit language in the deed or contact may entirely release the previous owner from liability if the parties so agree.
  
  

Due-on-Sale

• Some mortgages contain a clause known as a "due-on-sale" clause. This clause gives the mortgagee the right to demand payment of the entire mortgage if the mortgagor transfers the property without the permission of the mortgagor. Although individual states' laws may differ on the enforceability of due-on-sale clauses, federal law mandates enforcement of due-on-sale clauses in cases of institutional lenders.