What Is a Chattel Mortgage?
Description: Chattel mortgage is the legal term used for a form of financial contract employed in some states having corresponding legal systems based on English law. Under such a loan agreement, the lender provides funds for the purchase of a property from the borrower’s mortgagor and the borrower returns it to the lender after completing the deal. It is often called “mortgage” since the agreement is between the two parties as opposed to the creditor who usually acts as an “opinion buyer” in all commercial transactions. There are usually different types of such mortgage, and they are classified as owner-financed, debtor-financed and recourse financed.
The borrower is generally a non-dominant lien holder or an individual not entitled to a specific title or possession. Title to the property is transferred to the lender upon the borrower fulfilling all the conditions set forth in the loan agreement. The title search procedure is typically performed by a title company. The property is normally transferred to the lender at the time of closing. The lender retains title to the property until the outstanding balance on the loan is satisfied and the property is sold to meet the debt of the borrower.
Like all mortgages, a chattel mortgage involves risks as well as benefits. The benefits of this type of mortgage deal for the borrower include low interest rates, tax deductibles, as well as flexible payment options. In addition, a chattel mortgage offers the borrower the security of having the property while paying lower mortgage insurance premiums.
Risk factors involved with this type of loan are that the lender will sometimes foreclose on the property if the borrower fails to make payments. Another risk is that the borrower may use the property as collateral when taking out another loan, especially if he or she has poor credit. If the property is foreclosed by the lender, the borrower loses ownership of the property but will retain the lien. The good thing is that this type of mortgage gives the borrower the choice to sell the property at auction or to redeem it by paying off the loan.
Typically, this type of mortgage is not recommended for buyers who do not have a large amount of property to secure the loan. This type of mortgage is best for borrowers who have collateral such as a home. Buyers who have collateral are less likely to lose their property because of defaulting on a loan. Before a buyer goes through with a loan modification, he or she should get information about the different methods that can be used to refinance a mortgage and avoid falling into foreclosure. The advantages and disadvantages of a refinance are the amount of money the borrower can borrow and the duration of the loan.
A chattel loan is a great choice for tenants and homeowners who share a property. A tenant can use the chattel of his or her property to earn additional income. In turn, the homeowner can benefit from the higher value of the chattel. The homeowner will also benefit from the reduced interest rate and payment terms of the loan. The only disadvantage of this type of arrangement is that the borrower cannot use the chattel in his or her own property.
A chattel mortgage allows a homeowner to use the collateral of the property as security for the loan. The borrower can then choose to redeem the property or sell it at an auction if he or she does not repay the loan. A homeowner will also have to pay tax on the amount of money he or she earned from the sale of the chattel. The advantage is that the interest rate of this type of mortgage is usually low, which makes it ideal for borrowers who have a low credit rating and excellent credit standing.
However, some homeowners may not be able to pay off their debts in full. This is why it is important to check the options that a lender or financial company has to allow the borrower to get out from under the burden of the chattel. One option is to offer the chattel in a short sale or foreclosure auction. Another option is to give the property back to the lender. These are just two of the many options that a financial institution or lender can use to help a borrower who is facing financial hardship and is unable to make his or her monthly payments.