Things you need to know about Chattel Mortgage for Payment of Loan.
1. What is a Chattel Mortgage?
A Chattel Mortgage is a contract where movable property (i.e. a car) is put up as security by the debtor (the “mortgagor”) in the creditor’s (the “mortgagee”) favor for a loan or any other principal obligation. If the debtor fails to pay the loan or fulfill the principal obligation the creditor may foreclose the mortgage and sell the movable property on public auction. The proceeds of the sale will then be used to pay the debt.
An obligation secured by a Chattel Mortgage is called a secured debt. On the other hand an obligation unsecured by any collateral is called an unsecured debt.
2. When do you need a Chattel Mortgage?
A Chattel Mortgage is often used in transactions involving money such as lending & borrowing of money. The lender will be more willing to lend money if the debt is secured by a mortgage which the lender can look to for recovery if the debtor fails to pay the loan.
3. How can a Chattel Mortgage protect you?
A Chattel Mortgage protects the lender by giving him collaterals that he can foreclose and sell to satisfy the loan if the borrower fails to pay. If the borrower defaults the lender can sell the collateral on public auction and apply the proceeds to the loan. In certain cases, if the proceeds from the public auction is insufficient to fully pay the loan, the lender can still go after the borrower for any deficiency.
For the borrower a Chattel Mortgage makes it easier to borrow money because lenders will be more willing to lend money if they know they are secured by collaterals. Thus, borrowers have easier access to financing.
4. How is a Chattel Mortgage different from a Real Estate Mortgage?
Both documents serve the same purpose of placing a mortgage on the property. However, a Chattel Mortgage is used when the security involves movable property while a Real Estate Mortgage is used for immovable property.
5. What information do you need to create a Chattel Mortgage?
To create your Chattel Mortgage you’ll need the following minimum information:
- The type of mortgagor (i.e. individual or business) as well as name and details (i.e. nationality and address)
- The type of mortgagee (i.e. individual or business) as well as name and details (i.e. nationality and address)
- Brief description of the property being mortgaged (i.e. type of property)
- Brief description of the obligation being secured (i.e. amount of the loan)
6. How much is the document?
The document costs PhP 450 for a one-time purchase.
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