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Money Lenders
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Tip : If
you are planning to lend money to a
friend always fill up a form or a pledge card this way
you are covered legally. The historic use of the term Money
lender refers to a person who as charges a fee
for the use of money (i.e. a usuror).A loan is a type of
debt. All material things can be lent but this article
focuses exclusively on monetary loans.
The contemporary use of the term Money lender refers to a
person or business organization that offers unsecured
loans to individuals at rates that are far higher than
market interest rates. Money lenders typically lend to
individuals who would not qualify for loans from
financial institutions such as banks or subprime lenders
because their income is at or below the poverty threshold
or because they have adverse credit scores. Money lenders
provide an important source of credit by lending to
individuals who would otherwise not have access to a bank
or credit union, but since such borrowers are categorised
as being at high risk of default, they charge high
interest rates, and possibly up-front charges and
collection fees.
Regulation
Money lenders in the United Kingdom are
regulated by the Office of Fair Trading, and must be
licenced to lend money under the Consumer Credit Act
1974.
Money lenders who are unregulated, engage in predatory
lending or seek to enforce loan agreements by illegal
means such as extortion are commonly referred to as Loan
sharks. A mortgage is a method of using property (real or
personal) as security for the payment of a debt. The term
mortgage (from Law French, lit. dead pledge) refers to
the legal device used for this purpose, but it is also
commonly used to refer to the debt secured by the
mortgage, the mortgage loan.
In most jurisdictions mortgages are strongly associated
with loans secured on real estate rather
than other property (such as ships) and in some cases
only land may be mortgaged. Arranging a mortgage is seen
as the standard method by which individuals and
businesses can purchase residential and commercial real
estate without the need to pay the full value
immediately. See mortgage loan for residential mortgage
lending, and commercial mortgage for lending against
commercial property.
In many countries it is normal for home purchases to be
funded by a mortgage. In countries where the demand for
home ownership is highest, strong domestic markets have
developed, notably in Spain, the United Kingdom and the
United States.
Participants and variant terminology
Legal systems tend to share certain concepts but vary in
the terminology and jargon used.
In general terms the main participants in a mortgage are:
Creditor
The creditor
has legal rights to the debt or other obligation secured
by the mortgage. That debt
is often the obligation to repay the loan by the creditor
(or its predecessor lender) who provided the purchase
money to acquire the property mortgaged. Typically,
creditors are banks, insurers or other financial
institutions who make loans available for the purpose of
real estate purchase.
A creditor is sometimes referred to as the mortgagee or
lender.
Debtor
The debtor is the person
or entity who owes the obligation secured by the
mortgage, and may be multiple parties. Generally, the
debtor must meet the conditions of the underlying loan or
other obligation and the conditions of the mortgage.
Otherwise, the debtor usually runs the risk of
foreclosure of the mortgage by the creditor to recover
the debt. Typically the debtors will be the individual
home-owners, landlords or businesses who are purchasing
their property by way of a loan.
A debtor is sometimes referred to as the mortgagor,
borrower, or obligor.
Other participants
Due to the complicated legal exchange, or conveyance, of
the property, one or both of the main participants are
likely to require legal representation. The terminology
varies with legal jurisdiction; see lawyer, solicitor and
conveyancer.
Because of the complex nature of many markets the debtor
may approach a mortgage broker or financial adviser to
help them source an appropriate creditor, typically by
finding the most competitive loan.
The debt is, in civil law jurisdictions, referred to as
hypothecation, which may make use of the services of a
hypothecary to assist in the hypothecation.
Legal aspects
There are essentially two types of legal mortgage.
Mortgage by demise
In a mortgage by demise, the creditor becomes the owner
of the mortgaged property until the loan is repaid in
full (known as "redemption"). This kind of
mortgage takes the form of a conveyance of the property
to the creditor, with a condition that the property will
be returned on redemption.
This is an older form of legal mortgage and is less
common than a mortgage by legal charge. In the UK, this
type of mortgage is no longer available, by virtue of the
Land Registration Act 2002.
Mortgage by legal charge
In a mortgage by legal charge, the debtor remains the
legal owner of the property, but the creditor gains
sufficient rights over it to enable them to enforce their
security, such as a right to take possession of the
property or sell it.
To protect the lender, a mortgage by legal charge is
usually recorded in a public register. Since mortgage
debt is often the largest debt owed by the debtor, banks
and other mortgage lenders run title searches of the real
property to make certain that there are no mortgages
already registered on the debtor's property which might
have higher priority. Tax liens, in some cases, will come
ahead of mortgages. For this reason, if a borrower has
delinquent property taxes, the bank will often pay them
to prevent the lienholder from foreclosing and wiping out
the mortgage.
This type of mortgage is common in the United States and,
since 1925, it has been the usual form of mortgage in
England and Wales (it is now the only form - see above).
In Scotland, the mortgage by legal charge is also known
as standard security.
In Pakistan, the mortgage by legal charge is most common
way used by Banks to secure the financing. It is also
known as Registered Mortgage. After registeration of
legal charge, Bank's Lien is recorded in land register
stating that the property is under mortgage and can not
be sold without obtaining NOC (No Objection Certificate)
from the Bank.
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