What interest does mortgage company hold after real estate purchase?
By Chesley Payne
I often receive questions about what rights an owner has in the event the owner defaults and is facing foreclosure by a mortgage company.
The owner’s rights are directly related to what theory of law applies in that state. In Alabama, we are a title theory state. In a title theory state, the mortgage company is deemed to have a legal interest in the owner’s property that can be executed through a foreclosure sale to remove the owner’s legal right to the property. Other states apply a lien theory, which means the mortgage company’s interest in the property is only a lien and is not an ownership interest.
A mortgage company in this state has no property ownership rights until the mortgage is foreclosed. The difference between the two usually means that mortgages in a title theory state can be foreclosed without filing a lawsuit while mortgages in a lien theory state can be foreclosed only through the use of a judicial foreclosure procedure (basically, filing a lawsuit). Obviously, this is not true in all cases and your situation should be examined by an attorney licensed in the jurisdiction in which your land is located.
However, for Alabama land owners who have a mortgage on their property, it’s important to note a foreclosure can take place in a relatively short period of time, about 45 to 60 days. Therefore, if you are having difficulty making your payments, you must move quickly to avoid disastrous consequences from a mortgage company exercising its right to foreclose through a non-judicial foreclosure. For mortgage lenders, it’s important to have a right of sale provision in every mortgage. Failure to have this provision can cause delay and additional cost due to your having to file a lawsuit to recover the property. In all instances, contact your attorney to ensure your legal rights are being protected.