A mortgage is a loan instrument, created under the national law of many countries, that provides for the conditional financing of real property. A party who wants to purchase property that costs more than he can afford often seeks a mortgage loan in order to make the purchase. The mortgagor, usually a bank or other large financial institution, lends the purchaser, or mortgagee, the money needed for the purchase subject to regular repayments. If those payments are not made, the mortgagor can usually foreclose on the property. A mortgage law is a law that sets the appropriate terms for mortgage arrangements, sets parameters on foreclosure practices, or in any other way shapes the mortgage agreement process.
National or local governments set mortgage laws. Although the laws vary from jurisdiction to jurisdiction, the general goal is consumer protection. Mortgages almost always present situations where there is an inequality in bargaining power between the parties. One party, the mortgagor, usually has a lot of power and can draft the terms and conditions of the mortgage. A mortgage law is usually designed to protect the mortgagee from unfair terms or discriminatory enforcement.
Many different types of law can be implicated in mortgage law. First is contract law. Mortgages are, at their most basic level, contracts between two parties: the parties agree to an exchange, the terms of return, and the time frame, among other things. Financial law is also implicated, including banking law and any applicable lending statutes. The law of secured transactions, which controls the terms and conditions of monetary exchanges with property as a security interest, is also usually a part of mortgage law, as are real estate laws and real property laws. Commercial mortgage law may also implicate business and incorporation laws, as well as any laws governing commercial dealings.
A mortgage law may dictate what kind of interest rates are appropriate under a mortgage, or may set an upper limit of penalties that can be assessed for late or incomplete payments. Similarly, a mortgage law may set rules on how fast foreclosure may happen. In many places, mortgage laws require at least a short grace period before a mortgagor may foreclose on a delinquent mortgagee. Mortgage laws are also responsible for either allowing or disallowing second mortgages, and setting the range of acceptable terms for such mortgages if they are allowed.
No mortgage laws dictate exactly what a mortgage must look like. Rather, the laws act as means of identifying the range of appropriate terms and conditions: they set out what is allowed and disallowed, but still leave room for individual dealings to take on their own shape. In this way, the mortgage marketplace remains competitive, but some degree of fairness and regulation is guaranteed.