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Real property

mortgage

A mortgage is a contract or agreement that includes a promissory note in which the mortgagor (borrower) agrees to repay the loan to the mortgagee (the lender—often a bank) and agrees that the real property that is the subject of the mortgage will serve as security or collateral for payment of the loan.

If the mortgagor (borrower) fails to timely make the loan payments, the lien created by the mortgage allows the mortgagee (lender) to seek judicial foreclosure on the property (a forced sale effected through the courts) and use the proceeds to pay the balance of the loan—plus any additional fees and penalties the mortgagor (borrower) is obligated to pay.

Some states use a mortgage agreement to secure the repayment of a loan for the purchase of real property and some states use a deed of trust.

In a mortgage, the mortgagor (borrower) retains title to the property (ownership) and grants the mortgagee (lender) a lien on the property. The mortgagor and mortgagee are the only two parties to the transaction and if the mortgagor defaults on the loan, the mortgagee must seek judicial foreclosure of the lien through the courts to sell the property and use the proceeds to satisfy the loan.

In a deed of trust, the grantor (borrower) transfers title (ownership) of the property to a third party (the trustee—often a title company) to hold title to the property as security or collateral, protecting the grantee (lender) until the grantor (borrower) repays the loan in full.

When a deed of trust serves as the security or collateral for the loan on the property, the lender may sell the property without going through the court system—and this is known as nonjudicial foreclosure. Nonjudicial foreclosure is usually less time-consuming and less expensive for the lender.

In Texas, both mortgage agreements and deeds of trust are used to secure repayment of loans for the purchase of real property. A mortgage in Texas involves a borrower (mortgagor) who retains title to the property and grants a lien to the lender (mortgagee) as security for the loan. If the borrower defaults, the lender must go through a judicial foreclosure process, which involves the courts, to enforce the lien and sell the property to satisfy the loan. On the other hand, a deed of trust involves three parties: the borrower (grantor), the lender (grantee), and a third party (trustee), who holds the title as security. In the event of default, the lender can initiate a nonjudicial foreclosure, which is typically faster and less costly than judicial foreclosure, as it does not require court intervention. Texas law allows for both judicial and nonjudicial foreclosures, depending on the terms of the agreement and the type of security instrument used.


Texas Statutes & Rules

Federal Statutes & Rules

Truth in Lending Act (TILA) - 15 U.S.C. § 1601 et seq.
TILA is relevant because it requires lenders to disclose certain information to borrowers in mortgage transactions, including the terms of the loan and the rights of the borrower.

The Truth in Lending Act (TILA) aims to promote the informed use of consumer credit by requiring disclosures about its terms and cost. The Act mandates that lenders disclose the annual percentage rate (APR), the terms of the loan, and the total costs to the borrower. TILA also provides borrowers with the right to cancel certain credit transactions that involve a lien on a borrower's principal dwelling, regulates certain credit card practices, and provides a means for fair and timely resolution of credit billing disputes. TILA has specific provisions regarding the rights and obligations of parties in a mortgage transaction.

Real Estate Settlement Procedures Act (RESPA) - 12 U.S.C. § 2601 et seq.
RESPA is relevant to mortgages as it covers the closing costs and settlement procedures in real estate transactions, ensuring that borrowers can make informed decisions about their mortgage and are protected from abusive practices.

The Real Estate Settlement Procedures Act (RESPA) requires lenders, mortgage brokers, or servicers of home loans to provide borrowers with pertinent and timely disclosures regarding the nature and costs of the real estate settlement process. RESPA also prohibits specific practices that increase the cost of settlement services, such as kickbacks and referral fees. Section 6 of RESPA provides borrowers with consumer protection during the servicing of their loans and mandates that servicers respond to borrower inquiries or complaints. Section 9 of RESPA prohibits sellers from mandating the use of a particular title insurance company, indirectly affecting the mortgage process.

Homeowners Protection Act (HPA) - 12 U.S.C. § 4901 et seq.
HPA is relevant as it deals with private mortgage insurance (PMI) and provides borrowers with certain rights to cancel PMI under specific conditions, which can affect the cost and obligations of a mortgage.

The Homeowners Protection Act (HPA) was established to provide homeowners with certain rights to cancel private mortgage insurance (PMI) that is required by lenders as a condition of a residential mortgage transaction. The Act stipulates that PMI must be terminated automatically when the mortgage balance reaches 78% of the original value of the secured property, provided the borrower is current on their payments. Borrowers also have the right to request the cancellation of PMI when the mortgage balance reaches 80% of the original property value. The HPA includes disclosures that lenders must provide to borrowers concerning the terms and conditions of their PMI.

Dodd-Frank Wall Street Reform and Consumer Protection Act - 12 U.S.C. § 5301 et seq.
The Dodd-Frank Act is relevant to mortgages as it created the Consumer Financial Protection Bureau (CFPB) and introduced new standards for mortgage lending to prevent predatory lending practices and to ensure that borrowers have the ability to repay their loans.

The Dodd-Frank Wall Street Reform and Consumer Protection Act was enacted in response to the financial crisis of 2008. Title XIV of the Act, known as the Mortgage Reform and Anti-Predatory Lending Act, establishes minimum standards for mortgages and creates a 'qualified mortgage' standard for residential mortgages. It mandates that lenders assess the borrower's ability to repay the loan and prohibits unfair, deceptive, or abusive acts or practices. The Act also established the Consumer Financial Protection Bureau (CFPB), which is responsible for enforcing compliance with federal consumer financial laws and protecting consumers in the financial marketplace.