Legal Mortgage

• The typical mortgage is a "legal" mortgage, in which the property owner gives another party an actual legal interest in his property. The interest in the property acts as collateral for a debt; in the event that the mortgagor fails to make payments as agreed upon, the mortgagee has the right to take the property. Many homebuyers use a mortgage in order to finance their purchases. The mortgagee holds the property until the mortgagor pays off his debt.
  
  

Foreclosure

• Should a mortgagor fail to make payment on his debt as scheduled, he's in default on his loan. After a certain period of default, typically dictated by the terms of the individual mortgage, the mortgagee gains the right to foreclose. Foreclosure completely ends the mortgagor's ownership interest in the property, and makes the mortgagee the owner in full. Most states demand that foreclosure be accomplished by a judicially ordered sale of the property. Foreclosure sales typically occur via an auction in which the mortgagee is free to bid.
  
  

Redemption

• Even if the mortgagee has already begun foreclosure proceedings on the mortgagor, the mortgagor may still have the right to redeem, or reclaim, his ownership of the property. All states allow "redemption in equity," in which the mortgagor can get his property back by paying off the entire amount due with interest. However, redemption in equity only applies before the property has been sold at a foreclosure sale. After foreclosure, only some states have laws allowing redemption. In these states, the mortgagor can typically redeem for only a year or less after the foreclosure sale, and he must usually pay the actual price of the property at the sale, not his original loan amount.
  
  

Equitable Mortgage

• Many states recognize a type of mortgage known as "equitable mortgage." When a property owner transfers his property in a transaction that looks like a sale, but the law later finds that the "sale" was actually a temporary transfer of the property as security for a loan, the law can treat the transaction as a mortgage. In deciding whether a sale was actually a mortgage, the law will typically look at the negotiatons between the parties, any debt owed by the "seller" to the "buyer," and any promise made by the "buyer" to return the land upon payment. A finding of equitable mortgage will grant both parties all the rights and duties of mortgagor and mortgagee. However, if a property has multiple mortgages, legal mortgagees' rights take precedence over those of equitable mortgagees.