Mortgage loans are large financial obligations, both for the borrowers who use them to buy homes and the lenders that offer them as a means of making money. When lenders and borrowers live by the terms of a mortgage, the relationship is a simple one, but if differences or problems arise, a mortgage agreement's contractual status can play a role in determining the outcome.
Mortgage contract indebtedness refers to the legal status of the money that an individual owes to a lender from a mortgage loan to buy a home or finance against home equity. The term contract indebtedness means that the borrower and lender have a legally binding contract for the debt, and that the lender has a right to pursue collection of the debt if the borrower should default, or stop making payments. Other types of contract indebtedness include bonds and leases, which, like mortgages, have contracts to serve as proof of the debt.
The mortgage agreement that you sign when you agree to a loan serves as the contract of mortgage indebtedness. This means that there are as many different types of contracts of mortgage indebtedness as there are loan options for mortgage borrowers. While the terms of each loan differ in areas such as interest rates, fees and penalties, and length, all mortgage agreements provide legal evidence of a debt as one of their basic functions.
Beyond the terms that discuss how a mortgage loan will operate, a mortgage agreement usually includes contract elements that govern how to deal with discrepancies between parties. For example, a contract of mortgage indebtedness may include a commitment on the borrower's part to pay any legal fees that the lender takes on to defend the contract, as during a foreclosure. These terms are subject to state laws that protect mortgage borrowers, such as a law in Ohio that states a commitment to pay a lender's legal fees is only allowable when the value of the debt exceeds $100,000.
Since a mortgage agreement serves as a contract of indebtedness, it allows either party to use the agreement in court to demonstrate the other party's failure to comply with the contract. For example, if a lender tries to raise your interest rates beyond the maximum increase stated in the agreement, you can supply a copy of the agreement in court. Likewise, if you file for bankruptcy, your mortgage lender can refer to your contract of indebtedness to seek repayment through the bankruptcy court.