Property Document Analysis, Part II: Mortgages

Mortgages are legal documents that evidence a lender's rights to a property in exchange for a loan.  In a mortgage, the homeowner is referred to as the borrower and the bank is termed the lender.  The term mortgage can also refer to a Deed of Trust, which is effectively the same as a mortgage; but in which the homeowner is called the trustor, the lending institution is the beneficiary, and a third party representative serves as the trustee.  The difference between a mortgage and a deed of trust is only relevant when a house falls into foreclosure.  With a standard mortgage, the bank takes over possession of the property and is responsible for selling the property, whereas a deed of trust names a trustee for the property who oversees the foreclosed property.  In theory, the trustee is supposed to be a neutral party, and therefore helps protect the homeowner.  The laws of each state declare if they allow for mortgages or deeds of trust.  For the sake of clarification, the term mortgage is universally applied to this entry. Mortgages are a useful resource for learning how wealthy someone is.  If an individual owns a home and has the ability to convert their equity [property value minus indebtedness] into cash, they then have the potential to use those funds to fund their campaigns or capitalize a business.  Likewise, if a subject has a high level of mortgage debt they may be at risk of defaulting or not being able to raise the capital needed to self finance a campaign or invest.  One way to determine if an individual has the equity in a property is to verify if the mortgage is still open.  If the mortgage is still open, the subject is carrying a liability on their balance sheet.  However, a property that is owned free and clear with no mortgages is an asset that can be easily converted into cash through a mortgage or sale.  A search of the County Recorder where the mortgage was filed will determine if a mortgage is still open.  A mortgage is considered satisfied when the holding institution files a Reconveyance, Release or Satisfaction (the term for the document will vary depending on the jurisdiction), which officially states the outstanding mortgage loan has been paid in full.

The terms of the mortgage can also be an indicator of future financial stability, particularly if a homeowner obtained an adjustable rate mortgage.  The terms of the adjustable rate mortgage, such as the initial interest rate, maximum interest rate, and frequency that the rate can be changed (or reset), are all described in an Adjustable Rate Rider filed with the original mortgage.  To see an example of an Adjustable Rate Rider, click here.

The collapse of the housing and real estate lending markets in 2007 has resulted in the increased scrutiny of mortgages obtained by public figures.  One way to spot a potential conflict is to look for connections between the lending institution and the homeowner.  A few questions that should be asked: Does the homeowner have a pre-existing relationship with anyone on the bank's Board of Directors?  Have they received financial contributions from the bank or voted in a manner that benefits the bank?  If the subject is an attorney, have they provided legal representation or lobbying services on behalf of the bank?

Another method to identify a conflict between a research subject and a mortgage provider is by looking at the interest rate.  While the interest rate itself is based upon many factors, including an individual's credit score, if an interest rate on a mortgage is significantly below the average rate offered at the time the mortgage was obtained, it may suggest that the borrower has received favorable treatment.