This section is from the "Everybody's Guide to Money Matters" book, by William Cotton. With a description of the various investments chiefly dealt in on the stock exchange, and the mode of dealing therein. Some account of the pitfalls prepared for the unwary, and suggestions to the cautious investor.
To invest money upon mortgage is to lend it to a person who has house or landed property, and desires to borrow money at a certain specified rate of interest. The title deeds of the property are deposited with the lender of the money, together with a mortgage deed, which describes, in full detail, the terms which may have been agreed upon.
The interest is usually made payable halfyearly, and in the event of its payment not being kept up, or the lender desiring the return of his money, the principal sum can be called up, the lender giving six months' notice of his intention to do so. If the borrower fails to pay, a process of law has to be instituted, called a foreclosure suit, which, if successful, transfers the absolute ownership of the property into the hands of the lender, so that he can receive the rents as his own, or, if he pleases, sell the property under legal authority. In view of such a contingency the value of the property should considerably exceed the amount of the money advanced, so as not only to cover the principal sum, but also any arrears of interest, together with law costs and expenses. The usual proportion of an advance on mortgage is two-thirds of the ascertained value of the property, but there might be circumstances which would warrant some variation in the proportion.
The mortgage deed should be prepared by the lender's own solicitor, who would see that the property had a good title and use all the precautions necessary in transactions of this kind to guard against fraud and loss; and in many cases a professional valuation of the property would be desirable, as a preliminary, before the advance is entertained at all.
Cases have been known where fraudulent persons have borrowed money on mortgages of property conveyed to themselves, but as to which they were trustees only for others. The lenders or mortgagees have, in such cases, no alternative but to give up the deeds and submit to the loss of their money.
Debentures are a form of mortgage applicable to the raising of money by a corporation or joint-stock company.
The company mortgages its property for a certain sum, too large for a single person to advance, so it is divided up into even amounts of, say, £100, the money being secured by debenture bonds, bearing interest at a fixed rate, and being saleable in the stock markets.