Mortgage law can be divided in two distinct theories:”title theory” and “lien theory.” Most states are lien theory states in which a mortgagor holds both legal and equitable title under a mortgage but the mortgage creates a lien on the property. Conversely, in title theory states the mortgagor retains equitable title but the mortgage is a transfer of legal title to secure a debt.
In Florida, there can be complicated rules that pertain to mortgages but it all comes down to the lien theory of mortgages. In essence, Florida Statute 697.01(1) provides parties’ basic rights and duties encompassed in any mortgage transaction. This statute states,
“All conveyances, obligations conditioned or defeasible, bills of sale or other instruments of writing conveying or selling property, either real or personal, for the purpose or with the intention of securing the payment of money, whether such instrument be from the debtor to the creditor or from the debtor to some third person in trust for the creditor, shall be deemed and held mortgages, and shall be subject to the same rules of foreclosure and to the same regulations, restraints and forms as are prescribed in relation to mortgages.”
All this boils down to is that regardless of the terminology, any property financing device is considered a mortgage. Because of lien theory, agreements for deed, rental instruments, contracts, and deeds that are drafted for other purposes are characterized as mortgages. Thus, there is a familiar sang in Florida, “once a mortgage, always a mortgage.”
Lien Theory Rights
So, it is extremely important that mortgagors and mortgagees know their basic rights associated with lien theory. Generally, the mortgagor retains his title, possession, and the right to rent or otherwise use the property. As against the mortgagee, the mortgagor cannot be compelled to give up his right to possession in the land, or his equity of redemption, unless ordered by court. On the other hand, the mortgagee can only receive payments under the mortgage indebtedness and can only enforce other covenants consistent with the mortgage.
Furthermore, the mortgagee has only a lien on the land which is the security for the debt. The mortgagor has title to the land and will always be able to redeem his equity in the property unless it is foreclosed. Any attempt by a mortgagee to avoid lien theory and obstruct the mortgagor’s equity without due process will be held invalid. As such, any type of mortgage or security interest in land must be foreclosed in a court of equity.
Although the varying types of instruments can cause problems, experienced attorneys can help straighten out the process. If you need help deciphering your rights within a mortgage, contact Lanigan and Lanigan in Winter Park, Florida.