What Rights Do You Have As A Mortgage Owner?

by David Jenyns on April 2, 2008

If a debtor does not pay you, the mortgage owner, secure a writ of possession and then sell the property. Although the nominal rate of interest is 6 percent, land contracts are sold at a discount like second mortgages so that the actual yield can be as high as 20 percent. A most important question to be answered in connection with land contracts or mortgages which are sold at discount is, “Since the nominal rate of interest is usually only 6 percent and rarely over 8 percent, and since effective rates of 12 percent, 15 percent, 18 percent or more are achieved through the discount at which the mortgage is sold, what determines the size of this discount?”

1. The mortgage or land contract has a longer time to run. Since the mortgage owner determines the effective rate by dividing the discount over the life of the mortgage, a 40 percent discount on a four year mortgage amounts to 10 percent yearly (40 divided by four years), but a 40 percent discount on an eight year mortgage amounts to 5 percent per year (40 divided by 8).

2. The contract is just starting so that there is no experience on how well the debtor pays and he has not increased his equity through payments.

3. The equity is a low percentage of the value of the home.

4. The first mortgage is a high percentage of the value of the home.

5. The second mortgage or land contract is a high percentage of the value of the home.

6. The home is in run-down condition.

7. The home is not located in the city or in a suburb, or is in a poor neighborhood or in one, which is declining.

8. The buyer of the home has a poor credit record.

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