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mortgage, in law, device for protecting a creditor by giving him an interest in property of his debtor. In common law a mortgage was a conditional sale; i.e., the mortgagor (debtor) sold realty (real property mortgage) or personal property (chattel mortgage), but if the debtor paid the debt by a certain time the sale was voided. The mortgagee (creditor) held legal title, the mortgagor equitable title; both estates were salable. Today Great Britain and a majority of states in the United States view mortgages as liens on property. The practical result under the two systems is the same. If the mortgagor does not pay the debt, the creditor seeks a court-ordered sale of the property (foreclosure), and the debt is paid out of the proceeds. During economic depressions many jurisdictions enact temporary mortgage moratorium statutes that give courts the discretionary power to refuse to foreclose mortgages.
In a reverse mortgage, a homeowner borrows against the value of a house to receive a line of credit, monthly payments, or a lump sum. Reverse mortgages are used by elderly homeowners as a way of obtaining cash, and normally the loan is paid off when the homeowner dies (or sells the property). Most such mortgages are made through the Federal Housing Administration's Home Equity Conversion Mortgage program, which places restrictions and protections on reverse mortgages. Mortgage insurance provides protection for both the lender and borrower, and the borrower cannot be forced to sell the house if the value of the reverse mortgage plus accrued interest and fees exceeds that of the home. The borrower may risk foreclosure, however, if taxes are unpaid or homeowner's insurance lapses.
(Russian, ipoteka; from Greek hypotheke), a lien on real property, mainly on land for the purpose of receiving a loan. The debt arising from the mortgage credit is also referred to as a mortgage, and the property pledged as security for payment is said to be mortgaged. From the point of view of the distribution of income created in agriculture, a mortgage is the selling of all land rent or a part of it in the form of interest paid on the mortgage credit. This is the economic essence of the lien on land and in general on all real property that returns rent (for example, the mortgage of houses which in turn are rented by their owners).
The mortgage is widely used in the contemporary capitalist economy, in particular in agriculture, a phenomenon connected with the highly developed lending business. The mortgage business is developed to a very high degree in the USA, Canada, Great Britain, France, and Sweden. Bank, state, and cooperative capital works through the mortgage system to establish its control over a significant part of the country’s stock of land. At the same time, the mortgage is one of the basic channels through which the capital is invested in agricultural production and other sectors of the economy. The mortgage permits the capitalist entrepreneur to increase the share of productively used available capital and allows the landowners to finance the purchase of additional large properties with a low initial commitment of their own resources. The importance of the mortgage increased particularly with the advent of technological progress in agriculture, which requires increased capital outlays for such purposes as the construction of modern industrial buildings and facilities and the purchase of costly equipment.
Mortgage credit has a longer term than other forms of credit. Mortgage loans are issued for periods of 15 to 40 years and longer, which allows comparatively low yearly discount rates (1–5 percent). Such loans have the character of a specific fund (for the purchase of land or equipment or for construction or land reclamation) and are issued on a deferred or installment payment plan for different periods of time (yearly, quarterly, monthly) with a fixed discount rate for the unpaid part of the indebtedness. In the USA (in the late 1960’s), indebtedness on mortgages amounted to more than one-half—and in Great Britain about one-fourth—of the overall value of buildings, installations, and machinery and equipment in agricultural enterprises. Large landowners receive most of the mortgage loans, small landowners resorting to them less often. Thus, in the USA, approximately three-quarters of the credit involving a lien on land (in the late 1960’s) was used by large farm owners and landowners and only one-quarter by smaller farm owners and landowners.
In many Western European countries, state and cooperative banks issuing mortgages as a rule do not give loans to small farmers and peasants (or to other real estate owners). They establish a minimum size property for which a mortgage loan can be issued. Therefore, small peasant landowners can resort only to personal loans, for which they have to pay high discount rates and which as a rule cannot save their small farms from bankruptcy.
In socialist countries the land is not subject to buying, selling, or mortaging; therefore, the mortgage does not exist in these countries.
REFERENCEMen’shikova, M.A. SShA: kapitalisticheskoe nakoplenie i industrializatsiia sel’skogo khoziaistva. Moscow, 1970.
G. L. FAKTOR