The common homebuyer usually requires obtaining a mortgage or other security instrument to consummate purchasing a new property. Home-buying security instruments can become confusing and often misinterpreted. Most people, such as Amber Heard, think that buying a house requires you to make a risk-free promise to make monthly payments towards the total purchase price of the home. Ms. Heard even analogized her "pledge" to donate a certain sum to multiple entities (such as CHLA) to a mortgage. (By the way, CHLA is a fantastic organization and if you are looking for an entity to donate money to, CHLA should be near the top of your list).
However, her analogy was grossly inaccurate and may have even caused members of the jury to doubt her knowledge, wisdom or perception of the world. A mortgage is a relationship between a lender and a prospective purchaser of real property whereby the lender provides money (usually the purchase price) for the purchaser to buy the home. The money is transferred to escrow (look to a future blog post for an explanation of escrow) on behalf of the purchaser and made available to the seller. Once the sale is complete, the entire purchase price (let's say $1,000,000) is transferred to the seller who can now use the proceeds (the one million dollars) as they see fit (excepting taxes, realtor fees, etc.).
The purchaser, on the other hand, provides a note of security (either a mortgage or deed of trust) promising the payment, over time, of the entire purchase price (with interest)back to the lender. The note of security is then recorded with the county clerk of the county in which the property is situated. The purpose of recording the instrument is to provide notice (awareness) to prospective purchasers of the same property that the promise to repay a certain amount has been made by the current owner (our purchaser from above). If the purchaser fails to make a timely monthly payment, the lender can initiate the forced sale of the home (foreclosure) in order to recover the amounts that is owed to the lender.
This process allows a lender to otherwise provide money (that they may not have been willing to provide) to a purchaser they may not trust financially. In other words, the lender is comfortable giving the purchaser all $1,000,000 because, if the purchaser stops making those monthly payments, the lender, at least, will have the ability to own and/or sell the newly acquired property.
If Amber Heard doesn't make a donation that was once 'pledged' nobody is going to sell her home -- a very different operation than a mortgage.
Comments