A mortgagee is a lender in a mortgage, usually a bank, credit union, or other lending institution. A mortgagee lends money to a borrower for the purpose of purchasing real estate (usually a house) in a lending deal in which the lender serves as the mortgagee and the borrower is known as the mortgagor.
How a Mortgagee Works
The mortgagee is the lender or lending institution in a home-loan scenario; it offers the mortgagor money to purchase a home or commercial property. The mortgagee and the mortgagor enter into an agreement wherein the mortgagor, or borrower, receives cash upfront then makes payments over a specified time span until the lender is paid back in full.
In addition to offering the mortgage on the house, the mortgagee acquires a claim to the property as collateral in case the borrower ever defaults on the loan. During the lifespan of the mortgage loan, the mortgagee holds the title until the loan is paid in full. If the borrower ever defaults on the loan, the mortgagee may potentially sell the property and retain the proceeds.
However, it is important to keep in mind that a bank or financial lender is not a mortgagee when it comes to managing other types of loans. For example, the bank is listed as a lender (not mortgagee) for car loans because no mortgages are at stake.
Mortgagee vs. Mortgagor
In a typical home-loan situation, the mortgagor is usually the couple or person seeking to purchase a home through a loan. The mortgagor is also known as the borrower, buyer, or homeowner. A mortgagor can also be a business, partners, or individual seeking a loan to buy a commercial building, but the term only applies if there's a mortgage involved in the transaction.
The mortgagee represents the bank or lending institution offering funds to purchase a home or commercial property. This property acts as collateral for the mortgage, and the mortgagee obtains a security interest in exchange for providing financing (a home loan) to the mortgagor.
A mortgagee clause is a clause in a property insurance policy stating that the property insurance company will pay out any claims to both the mortgagor and the mortgagee. An advantage for the mortgagee is that the mortgagee clause typically specifies that it will still receive an insurance payout in the event of a claim regardless of any violations made on behalf of the mortgagor.
Why Mortgagees Matter
Mortgagees are a crucial part of the home-loan-mortgage process. Mortgages make it possible for individuals lacking enough cash to purchase an asset, like a house, up front. Although they profit from the assortment of mortgage products, mortgagees and lenders take a risk in making these loans as there is no guarantee the mortgagor or borrower will be able to pay in the future.