How to Write a Mortgage Contract
The mortgage contract is a legally binding document between a borrower and lender that identifies what the mortgage is for, how the proceeds will be used and what rights the borrower and lender have. Lenders and real estate brokers typically draft this mortgage contract during the property sale process and can modify certain sections as they apply to their firm's or business's policies.
Write the title. Begin the document with the official title, "Loan Agreement" and the current date. Then state who the loan agreement is between; list the borrowers' first with their middle and last names, followed by the lender. Indicate each party with the designation "Borrower" and "Lender" after each name.
Create Article 1: Definitions. This section lists all of the defined terms used in the mortgage contract. Here you will specify what real estate terms and lender terminology mean, such as: Access Laws, Allocated Loan Amount, Affiliate, Deposit, and Default Rate. These terms will vary significantly by lender and whether the mortgage contract is for a residential or commercial property. List each term and its definition in alphabetical order.
Write Article 2: Borrower's Representations, Warranties and Covenants. This section will list all borrower's rights under this mortgage contract, as well as any warranties that will be included as part of the agreement. Examples of sections here would include: Existence and Ownership; Financial Information; Condition of Properties; Physical Condition; Survey; Security Interest and Bankruptcy.
Define Article 3: General Conditions of Loan. This section will list exactly what type of loan documents are being drafted and what types of title policy, survey, lender's inspection and insurance information are included as part of the agreement. List each component as a subhead to keep everything organized.
Write Article 4: Further Covenants of Borrowers. All financial information related to mortgage taxes, liens, accounting and leasing policies will be listed in this section. This section may also include information about litigation and auditing and inspection policies for commercial properties.
Define Article 5: Agreement to Lend. This section identifies the key parties involved in the mortgage, the use of the loan proceeds and any rules or regulations regarding the partial release of the loan.
Write Article 6: Insurance and Casualty. This section lists all insurance coverage, casualty and condemnation clauses.
Create Article 7: Borrower's Default. This section is a list of policies and legal rights the lender has in the event of a default. Most banks and financial institutions have a boilerplate statement of this policy, which can be inserted here.
Define the Miscellaneous section. This final section will include information about transfers, waivers, notice policies and rights to a written agreement. Every lender will have their own set of clauses to list here, depending on the type of transaction and property.
Borrowers will always be given a copy of the mortgage contract after all signatures have been confirmed. When writing the contract for the first time, consider having it reviewed by an attorney before presenting it to borrowers, to ensure that it complies with current mortgage regulations.
Lenders must go through the mortgage contract in detail with the borrower before requesting a signature.