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Must a Mortgage Be in Writing?

Although many contracts are enforceable whether written or oral, contracts that involve a transfer of real estate are deemed important enough that they are required, under the Statute of Frauds, to be in writing to be enforceable. The Statute of Frauds originated in England in 1677, and has been subsequently adopted in some variation in all states. As relates to mortgages, the purpose of the Statute of Frauds is to prevent a creditor from fraudulently contending that a debtor granted it an unwritten mortgage when in reality none existed.

There is an exception to the Statute of Frauds, called the part performance doctrine, under which an unwritten mortgage is deemed to arise by operation of law or is deemed enforceable even though unwritten. A mortgage will arise under this doctrine only when money is lent for the purchase of the specific real estate on which a mortgage is to be granted. If the money is lent and the borrower does not follow through with a mortgage as promised, an equitable mortgage can arise in favor of the lender by operation of law.

However, simply lending money does not constitute sufficient part performance to take an unwritten security arrangement out of the Statute of Frauds. The money has to be lent specifically for the purchase of the real estate on which the mortgage is to be granted. In cases where the loan proceeds are to be used for purposes other than the purchase of the real estate at issue, the lender will have to look to assets other than the real estate to satisfy a judgment on the defaulted loan.

Even where the part performance doctrine requirements for imposition of an equitable mortgage are met, it is highly advisable to get the mortgage in writing. First, oral testimony as to the mortgage agreement is subject to clouded recollections and intentional fabrication. On the other hand, a written mortgage speaks for itself and should avoid a credibility contest in court. Also, by definition, an unwritten mortgage is unrecordable. Therefore, other parties can record liens and mortgages on the real estate at issue subsequent to the initial loan. This can result in the holder of the unwritten mortgage losing the repayment priority to which he or she is entitled by virtue of the earlier loan.

It is clearly in the best interests of the lender in any situation to get the mortgage in writing. In many states there are standard "boilerplate" forms that can be used. It is also crucial that the mortgage actually be recorded, rather than placed in a file folder for future recordation if necessary.

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