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Show ALL Forums  > Off Topic  > When one makes a loan, who has ownership of the loan: the lender or t      Home login  
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 WeAre1
Joined: 3/18/2008
Msg: 5
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When one makes a loan, who has ownership of the loan: the lender or the borrower? How and why?Page 2 of 2    (1, 2)
totally in the wrong forum....unless we turn it into a philosophical debate....hmmm....

well, back to the op's question...another way that shows who owns what is if you get a loan to purchase a car, for example,
the lender gets the title of the car - so essentially they own the property - until you pay off the loan and then the title comes to you as the owner.

think of it this way....the loan is not what's for sale, so 'ownership of the loan' is not a valid concept. the loan is simply what it says
and is a legal contract, as a poster above says, to enable borrowing of money to procure ownership of the property....eventually....
unless you default on it and then you'll soon realize who 'owns' it and everything else too. :)
 Wishes Granted
Joined: 3/6/2008
Msg: 6
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When one makes a loan, who has ownership of the loan: the lender or the borrower? How and why?
Posted: 4/19/2010 9:02:44 AM
In order for a contact to be of any worth or, legally binding for that matter.. both parties have to receive something. The borrow receives the money to purchase what they will. The lender gets interest and, usually when/if the borrow defaults on the terms of the contract, also gets whatever the borrow er bought with the lended money.

I'd say that both are owners of the contract but the one doing the lending has the most leverage.. Particularily when the borrower is in default.
 abelian
Joined: 1/12/2008
Msg: 7
When one makes a loan, who has ownership of the loan: the lender or the borrower? How and why?
Posted: 4/19/2010 9:10:50 AM

My boss and I had a brief discussion on the matter. He the borrower has ownership of the money. I question, however, why the borrower has to return the loan amount plus the interest.

The reason is simple. Those were the terms contained in the contract to which everyone who signed the contract, agreed.
 OMG!WTF!
Joined: 12/3/2007
Msg: 8
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When one makes a loan, who has ownership of the loan: the lender or the borrower? How and why?
Posted: 4/20/2010 9:50:05 PM
Mortgages are kind of funny in that the mortgage itself is something that the borrower gives to the bank, not vice versa. So you don't really go to a bank to get a mortgage. You get money from the bank and in exchange you give them a mortgage (a secured interest on real property that you own). The etymology of the word is literally "dead pledge" or a pledge you provide that can only be satisfied when it is considered "dead" either by paying it back or giving up the security or in some nasty cases, a combination of both. So the money the bank gives you is ultimately owned by the last person who owned the house. Therefore the house is owned by you even though the bank has a registered interest in it. And the bank owns the mortgage you gave them.

Why would there be a question about paying back any loan? You have to return your rental car, just like you would have to return a loan. You paid a fee for the rental car. Just like you would pay a fee or interest for a loan. You own the money that is lent to you. The lender might own a "registerable interest" in some kind of security, but does not own the actual security at the time of the loan. That would be a straight across the board sale.
 Super Ryan
Joined: 9/15/2007
Msg: 9
When one makes a loan, who has ownership of the loan: the lender or the borrower? How and why?
Posted: 4/22/2010 6:52:23 AM
Let's look at it from the perspective of the balance sheet.
Every business has a balance sheet, it is divided into three sections. The asset side, these are things the company owns, it could be cash, equipment, inventory, or a whole bunch of other things that a company can own. The other side has two parts. Liabilities, which are things the company owes, like a loan. And the third part, on the same side as liabilities, is the equity section, this is the amount of the company the owners own, it could be listed as owners equity or in the form of shares/stocks plus any retained earnings.
Both sides of the balance sheet will always be equal, the assets equal the liabilities plus the equity.

Now let's say we have two companies, company A and company B, and A will make a loan to B for $1000.
Company A will record the loan as an asset and company B will record it as a liability. So the ownership of the loan would be company A, since assets are things owned and liabilities are things owed.
To show how the balance sheet will always balance let's look at how the whole transaction would look like.
Company A will reduce their cash account by $1000, and they will increase their accounts recievable (where small short term loans are usually kept, as the lender) by $1000. Since both accounts are assets, the asset side of the balance sheet will stay the same.
Company B will see a $1000 increase to their cash account and a $1000 increase in their accounts payable (where small short term loans are kept, as the borrowers). This will cause the asset side to increase by $1000 and the liability side to increase by $1000.

Now to prove ownership a bit further. If company A finds itself in need of cash, they can sell the loan to a third party, only something owned can be sold.
But if company B no longer wants the loan with A, they must buy back the loan.

As far as loans go, there are two basic types secured and unsecured.
Unsecured loans have nothing backing them, but a promise to pay. If a burrower defaults on unsecured loan, the lender must go to court to try and get their money back.
A secured loan has an underlying asset backing up the loan. These are your mortgages and car loans, as well as any other loan that has an asset backing it. With a secured loan, if the borrower defaults, the lender can take the underlying asset, like a house or a car. But as long as the borrower is paying back the loan, the asset (house or car) is owned by the borrower.

Now back to company A and B.
If company A grants a $1000 loan to company B so they can buy a new computer, and it is a secured loan backed up by the computer as the underlying asset.
Company A would again see their cash account reduced by $1000 and their accounts recievable go up by $1000.
Company B will again record the $1000 as an increase to their accounts payable and the computer equipment account will go up by $1000.

For interest we need to bring in another financial statement, the income statement.
The income statement records revenues, things that bring money to the company like sales revenue, rent revenue, interest revenue and any other thing that brings income to the company. And the income statement also records expenses, this can be wages, interest expense, rent, utilities, taxes, cost of goods sold, and anything else that a company would spend, without retaining an asset, in the course of business. And at the bottom of the income statement is net income.
With the balance sheet all the accounts are perpetual, the only way to get them to zero, is to get rid of the asset or pay off the liabilities. But the accounts on the income statement get reset to zero at the end of each accounting cycle. The revenues and expenses are sent to the net income, and the net income is then transfered to the retained earnings account, where it can be distributed to the owners.

Back to companies A and B. Let's say $100 of interest has built up on the loan.

First we'll say company B pays the $100 interest to company A.
Company A will record an increase in their cash account by $100 and an increase of $100 to their interest revenue account. This might appear to screw up the balance sheet, but once the $100 is tranfered to the income statement and then to the retained earnings, it will result in an asset account (cash) going up by $100, and the retained earnings, part of equity, will go up by $100.
Company B will record a decrease of $100 to their cash account and a $100 increase to their interest expense account. Once the expense is cycled through the income statement, they will see a $100 decrease to their cash account and a $100 decrease in their retained earnings.

And finally we'll say that company B does not pay the $100 interest and just allows it to be added to the loan.
Company A will record a $100 increase to the acoounts recievable and a $100 increase to their interest income account. This will result in the asset, accounts recievable, going up by $100 and the equity side will again see the $100 increase.
Company B will record an increase to their accounts payable by $100 and an increase of $100 to their interest expense. Once cycled throught the income statement, it will be a $100 increase to the liabilities, accounts recievable, and a $100 decrease to retained earnings.

I hope that helps people understand that it is the lender that owns the loan.

As for why interest is charged on loans, it is for very good reason. Money has a time value to it.
Most companies will try to keep as little money idle as possible, since idle money earns zero income. If a company loans out their money, that is money they can't use for anything else so they would expect some sort of return on the loaned out money.
As an example, let's say a restaurant manages to build up $500,000. If they just hid the money in the fridge for a year, it would be the same $500,000 a year later. But they could take the money and buy another restaurant, that in one year the new restaurant would still be worth $500,000, but has also earned income. So it makes sense that if they loaned out the $500,000 they would want to earn interest revenue around the same amount as the restaurant would make in that year.
And if a company burrows $500,000 they should be using it to increase their income so they can pay the interest expense.
Money has a time value, and that is why interest is charged.

Before anyone jumps down my throat. I intentionally left out tax implications, risk vs rewards, and the effects of inflation on interest rates. I did this as to not confuse people further.
Everything above is basic accounting, and is accepted by Canadian GAAP standards, American accounting practices, and International Financial Reporting Standards.
 OMG!WTF!
Joined: 12/3/2007
Msg: 10
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When one makes a loan, who has ownership of the loan: the lender or the borrower? How and why?
Posted: 4/22/2010 7:27:08 AM

the big difference between a mortgage and a line of credit is, the mortgage is "secured" which means you are putting up the value of real property as collateral for the loan. so if you default in the loan, they get the house. pretty simple. people understand that.


LOC's can be secured on real estate, they're called home equity lines here. The major difference is that loc's appeare as revolving credit on your credit report whereas mortgages, at least in Canada, still do not. The other difference is that there are more favourable rules for lenders of loc's in the event of default. Mortgages typically dictate the secured property as the only recourse for default, whereas for a heloc, the lender may pursue a personal covenant as well as the property...sue the borrower for the balance left after the sale of the principal asset. Unsecured lines leave all the borrowers assets open to seizure, not just houses. Big differences.


when you get a loan from a bank -- whether it's a mortgage or just a line of credit -- do you imagine they are actually giving you money? nope.


I just don't get this. Why does the old owner of the house give me the keys to his/her house if he/she didn't get any money? I guess you mean the bank doesn't actually own the money they've given up? They've borrowed it from somewhere? Hence the house of cards? We have much different standards for lending in Canada starting with our versions of Fannie and Freddie. In Canada insurance companies actually hold assets enough to cover a mandated portion of the insured loans, if they are short, taxpayers are on the hook for it. These companies actually make money in Canada. But following the typical secured mortgage loan, banks get the money from somewhere, bond markets, other banks, private funds, deposit holdings, the BOC or Fed Reserve. I really don't understand the non existant money theory. The end user gets the dough. Same with credit cards. The restuarant I used my card at last night gets the money today for a fee if they want it, at the end of the month if they can wait or want to pay less.


i go stark-raving mental every time these bankers start crying about their losses. do you realize how much damage could be un-done merely by forgiving interest?


No, I don't. The interest is minor compared to the capital losses banks realize from bad loans. They're becoming more willing to keep people in their houses as long as the taxes and utilities are paid. They don't want these assets.


you are creating out of thin air the PRINCIPAL, and then the bank charges you INTEREST on the assets that YOU just created FOR THEM. and guess what... the bank gets to collect on both


I'm starting to feel dumber because I just don't get this. What does this mean? I've got an loc at the bank. Zero balance, but the principal is there if I want it. Gotcha. The bank is making no money. I take some money out to buy a car. 20k leaves the bank with me in a bucket and goes to the car salesman. Car guy is happy, bank now gets interest payments from me until the loan is paid back. How is the bank collecting twice?
 OMG!WTF!
Joined: 12/3/2007
Msg: 11
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When one makes a loan, who has ownership of the loan: the lender or the borrower? How and why?
Posted: 4/22/2010 8:13:25 AM

If it is a secured loan, the lender also owns whatever was purchased with the funds, until the loan is repaid, then ownership of the property is transferred to the borrower.


Banks wish that were true, but no. What would repo men do? And lawyers? For gawd's sake think of the foreclosure lawyers. They have to survive too. The borrower has 100% ownership of anything he/she buys. The bank registers an interest in property, cars, other registered assets, but they have no ownership until the judge says so. Most times ( in Canada anyway) they never actually own it, it's just sold under a court order and the proceeds divided as needed.
 Super Ryan
Joined: 9/15/2007
Msg: 12
When one makes a loan, who has ownership of the loan: the lender or the borrower? How and why?
Posted: 4/22/2010 8:13:36 AM

here's another important point. the ONLY difference between a credit and a debt is time. credit is deferred payment, whereas debt is a due payment. now,

This is fundamentally and completely wrong.
Debt is a liability, something owed, and it does not need to be due.
Credit, or creditor, means right side. And debit, or debitor, means left side.
On the balance sheet the assets are kept on the right side and the liabilities and equity are kept on the left side.
Assets and expenses are credit accounts. Liabilitites, equity and revenues are debit accounts.

when you get a loan from a bank -- whether it's a mortgage or just a line of credit -- do you imagine they are actually giving you money? nope. they are merely making a bookkeeping entry into your account. there is no real exchange taking place.

Wrong again, there is usually a transfer of wealth.
With a mortgage, the seller recieves the money in exchange for the house. Both the cash and the house are transfered.
With a line of credit, assuming the money is used, cash is transfered to whatever needs the borrower has, whether it is to pay for staff or inventory or anything else.
And lines of credit can be secured.

this means that every time you, as a consumer, get a loan from a bank, or use your credit card to buy anything, you are creating out of thin air the PRINCIPAL

No the money used for whatever purpose is the principal. Do you really think if I go to the mall and buy some shoes with my credit card, the shoe store doesn't recieve money from the bank for the shoes.

and then the bank charges you INTEREST on the assets that YOU just created FOR THEM

No they are charging you interest on the cash assets they just loaned to you.

the bank gets to collect on both!

Are you suggesting that because I used a credit card I should get my shoes for free?
And again there is a time value to money. A dollar today is worth more than a dollar tomorrow.

do you realize how much damage could be un-done merely by forgiving interest?

Sure the home owners would be laughing, but the banks would go under. Remember the banks need to get the money they loan out from somewhere, either by having people deposit money, selling off assets or having people invest in the bank. If it's money deposited, the depositors will want interest, and if it's from investments, the investors will want a return on the investment. And let's not forget the banks have overhead that needs to be paid.

if you are in the U.S., look at your dollar bill, a.k.a. "federal reserve note". and what is a "note"? it's a debt, of course. now who can tell me... how can you ever pay a debt, with a debt?

I think you might have the exact opposite understanding of what a federal reserve note is.
If you have a dollar bill in your pocket, that is a promise that the central bank owes you $1. So if you owe the governement $1, you can give them the dollar bill and both debts are wiped out.

Let's go back to the balance sheet.
If the central bank wants to increase to money supply by $1000 dollars by depositing it into a commercial bank.
The central bank will record an increase to their accounts recievable, the loan to the commercial bank, and they will record on increase to the outstanding currency account, which is a liability. Accounts recievable is a credit account and the outstanding currency is a debit account.
The commercial bank will record an increase in their cash account and an increase in their accounts payable to the central bank.
So if the commercial bank wants to eliminate their accounts payable to the central bank, they just need to give back the $1000.

In Canada the central bank is the Bank of Canada and in the States it is the Federal Reserve. They are the only entities allowed to create money.
Commercial banks are where us regular folks do our banking. They are never allowed to create money, EVER. And their books are audited every single night, well 5 nights a week less bank holidays.

does anyone really get this? the implications are actually rather mind-boggling.
take the red pill, people.

It's not really that mind-boggling. You just need to learn the basics and everything else starts to fall into place. And quit taking pills.


I get the feeling some people on this thread have watch one or more of the Zeitgeist movies.
If you are one of those people, please forget everything you have "learned" from those movies. And if you have not seen any of them, really don't bother.
They are so full of sh1t, it's not even funny. They over exagerate simple concepts, and just seem to make up crap when ever they feel like it.
I'm pretty sure they were made by a film student (they are slick looking), who took one course on macroeconomics and did not grasp the concepts at all.
 OMG!WTF!
Joined: 12/3/2007
Msg: 13
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When one makes a loan, who has ownership of the loan: the lender or the borrower? How and why?
Posted: 4/22/2010 1:44:15 PM

Foreclosure is simply the bank evicting non paying people from the homes that they own, then they place their asset (the house) back on the market and resell it. The lawyers simply handle the formalities of terminating the nonperforming contract.


I'm sorry you don't believe me anonymous, and I'm not sure how to tell you this nicely, but you're completely wrong. Believe me, I wish you were correct. I'd be a lot better off. But banks don't own your house. If banks already owned your house, they wouldn't wait for an order nisi from a court before they tried to sell it. They would just sell it. Why would they bother with court mandated foreclosure proceedings? Ask yourself this, if the bank owned your house for the last twenty years, would they simply allow you to realize 100% of the benefit from the sale of the house? Would you get all the equity you've built up over the last twenty years of faithfully paying your mortgage and living in an appreciating asset? Or would they want their cut as an equity owner in your place? In addition, I'd be demanding the bank pay their share of the property taxes. In return, they would probably want to drop by every now and again and spend the night when they're in town. But in no uncertain terms do they own your house. They have none of those rights and responsibilities.

The whole foreclosure process is not just to evict tenants. That's a whole other procedure. I know this beyond a shadow of a doubt. Being a mortgagee (a bank) is absolutely not the same as being the owner of the house. A foreclosure allows the property owners (the borrower) a period of time to realize any equity they may have. Only if the court determines there is no equity and only if the owners do not contest the foreclosure, then the court might grant an order of possession to the bank. However redemption periods for home owners can run into periods of several months to even years. If banks owned the houses they lend on, none of this would be necessary. Their interest is registered on title as a mortgage holder, not as an owner. If you live in an area with titles to properties, you could see that there are owners listed first, then the first mortgage holder is listed as a mortgage holder, then the second mortgage holder, any lien holders, caveators, writs etc etc etc. None of these people are owners. Just owners are owners. Personal property is the same to an exent. Repo men can repossess a car that legally belongs to you but has been ordered for sale by the court. Here, it is called a desktop seizure, an order registered on the title of a vehicle. Again, if there is no equity in the car, the loan provider of the car may get it into their possession by a court order. If their is equity, it is sold in the original owners name and the proceeds distributed as required. Banks don't own anything but the paper you've signed until and only if a judge grants them possesion.
 Super Ryan
Joined: 9/15/2007
Msg: 14
When one makes a loan, who has ownership of the loan: the lender or the borrower? How and why?
Posted: 4/22/2010 5:02:41 PM

I'm not an expert,

Neither am I, but I am studying the topic. In fact I wrote a 3 hour exam on Tuesday for ACC2220-Accounting Equities. So I am well versed on the subject of liabilities and transfer of ownership.

And I can tell you for an absolute fact that the home owners are the leagal owners of a mortgaged home, hence the name "home owner". The banks own the mortgage, but not the home.
A mortgage is a contract to pay back a loan, with a home securing the loan. As long as the payments are being made, the bank will never own the home. A default is a breach of the mortgage contract. And only under the breach can the bank make a move to take the house. And as long as the payments are made, the bank can never sell the home to someone else, they can only sell the mortgage contract.

To further prove ownership.
If I owned a home with a mortgage, I can paint all the walls pink and purple, and there is nothing the bank can do to stop me. It would be my home, and I would have the freedom redecorate the home however I want.
But in my rented apartment, I'm not allowed to paint my walls a slightly different white, heck I'm not even allowed to change my window treatments without the permission of the property owners.

Or let's look at it from the perspective of a truck.
If a get a loan to buy the truck, I can jack up the suspension and put on massive mudders, or any other alteration to the truck.
If I leased the truck, I am limited to only alterations the leasor approves.
And if I rent the truck, I'm not allowed to make any changes to the truck.

And finally let's look how a bank would record a mortgage on their books.
The bank would record a decrease in their cash account for the amount of the mortgage, and they would see an increase in their accounts payable-mortgages account. Nowhere does a bank record ownership of the home that they have granted a mortgage on.

This is not only accounting practices, it is also the law. In Canada, the United States, and most of the world that follows IFRS.
 OMG!WTF!
Joined: 12/3/2007
Msg: 15
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When one makes a loan, who has ownership of the loan: the lender or the borrower? How and why?
Posted: 4/22/2010 5:44:50 PM

I'm not an expert, and I'm not trying to argue omgwtf, but when you sign your mortgage documents, you're transferring your interest in the property to the bank, until such time as you fulfil your obligation. What do you think that means?


Sadly, I am an expert and I guarantee you beyond any shadow of any doubt that banks don't own mortgaged properties. The mortgage they do own gives them the right to foreclose on the pledged security. It doesn't give them any right of ownership at all. It's not just a hair split difference, it's a world of difference. I've had to foreclose on four properties in the last eight years and had I owned them, I'd have an extra 200k in the bank right now. But I didn't own them. I owned a piece of paper saying I had the right to foreclose and A) sell the property to recoup my loan or B) take legal ownership of the house and do with it whatever I wanted. I spend about 15k on lawyers each time, about 10k in lost interest and another 25k for all other expenses associated with finally selling a foreclosed property. If I actually owned the houses, I'd have just listed them for sale and been done with it. I certainly would not have gone through that whole costly 6 month process for no reason.


Why would they have the right to take possession of something you owned if you failed to repay?


They don't. Not automatically. They have to go to court, ask a judge, then, after all the bs is finished, they may or may not legally have the right to own the house you once owned or sell the house you still own.


If you owned the house, then you would be able to sell it, take all the money, and piss it away in Vegas if you wanted to, without satisfying the mortgage, as long as you were making payments on the loan, right?


Well, no because they guy who bought the house from you has a lawyer who is making sure that the title of the house has been cleared of the mortgage encumbrance you placed there when you bought the house. The buyer isn't going to give you money unless you agree to give it to the bank and the bank agrees in principle to remove its interest if they're given enough money. That's the only way anyone is getting keys on possession day. I guess theoretically if someone gave you a trunk full of cash and took your word for it, you could spend all the money in Vegas. Then the buyer would assume your mortgage and effectively have to pay twice to get rid of the mortgage. I'm sure that has happened, but it's not healthy financially.


Anytime someone has the right to come take something from you if you don't pay them, you don't own that particular item. You may have the right to use is (as long as you pay) but unless you've paid in full for something, it's not technically yours.


I totally agree with you in the old fashioned, Grandpa giving you advice kind of way. Things would be much easier.
 Super Ryan
Joined: 9/15/2007
Msg: 16
When one makes a loan, who has ownership of the loan: the lender or the borrower? How and why?
Posted: 4/22/2010 7:10:29 PM

Contracts muddle the accounting grounds.

No they don't.

For example, put and calls, derivatives contracts, gives you the option of buying or selling securities within a specified time period.

Yes, a call option is the right to buy a stock at a specified price within a certain time frame, and a put option is the right to sell a stock at a specific price within a certain time period.
These are in fact assets and have ownership.

The contract puts the question of "ownership" in "limbo," so to speak.

No it doesn't. The options have clear ownership as well as a liability to the issueing party.

The owner of the securities, having agreed to either buy or sell within a given time frame, is now obligated to have the securities available should be "option" be activated.

They are not required to own the underlying security. A company is allowed to sell options for stocks they do not own. However if a put option is excersized they must buy the stock, they can immediately sell it if they wish, usually for a loss. When a call option is excersized the company that issued the option must purchase a stock and give it to the owner of the option.

The securities are now placed under conditions specified in the contract.

Not true at all. Companies issueing options are not required to even own the stock, let alone be forced into holding conditions.

To prove this concept look at executive compensation in call options.
A company will record the expense as the options are earned, but they will not even create the stocks until the options are exercised.

And options are the right to buy or sell, they do not give ownership of the stock. Only the right to purchase (which would be the transfer of ownership), the stocks.

Part of the reason why the derivitives market is in such shambles, is because there is no rules about owning underlying asset. Entities are free to create and trade dirivitives without owning any of the underlying assets.
 Ailliss
Joined: 3/16/2010
Msg: 17
When one makes a loan, who has ownership of the loan: the lender or the borrower? How and why?
Posted: 4/22/2010 9:11:20 PM

On the balance sheet the assets are kept on the right side and the liabilities and equity are kept on the left side.
Assets and expenses are credit accounts. Liabilitites, equity and revenues are debit accounts.

According to generally accepted accounting principles (GAAP), Debits always go on the left side and credits go on the right.

For accounting purposes on the balance sheet debits ( assets) on the left, credits (liabilities) on the right. On the profit and loss sheet where revenue and expenses are listed, revenues are credit and the expenses are debits.


And finally let's look how a bank would record a mortgage on their books.
The bank would record a decrease in their cash account for the amount of the mortgage, and they would see an increase in their accounts payable-mortgages account. Nowhere does a bank record ownership of the home that they have granted a mortgage on.


The bank’s cash balance (a debit) would decrease; the check would be a credit to the bank and a debit to their accounts receivable. The accounts receivable would increase for they are looking forward to their mortgage being repaid. Accounts payable would be money the bank has to pay to another.

Now if the bank had assets set aside as strictly mortgage funds, this would not be a payable but a mortgages fund and then the transaction would also include subsidiary ledgers set up with mortgage loans receivable debit, and credit available cash mortgage loans.


Nowhere does a bank record ownership of the home that they have granted a mortgage on.


We almost never grant mortgages in the U.S. We now most often use deeds of trust.
The basic difference between the mortgage as a security instrument and a Deed of Trust is that in a Deed of Trust there are three parties involved, the borrower, the lender, and a trustee, whereas in a mortgage document there are only two parties involved, the borrower and the lender. In a Deed of Trust, the borrower conveys title to a trustee who will hold title to the property for the benefit of the lender. The title remains in trust until the loan is paid.

Main reason for a deed of trust is that the lender can foreclose faster and easier. “Generally, the rules when using a Deed of Trust allow for a faster foreclosure time than with a judicial foreclosure required with a mortgage. Under a Deed of Trust, when the borrower defaults on the loan, the lender delivers the Deed of Trust to the trustee, who then is instructed to sell the property.” You do not have to get a court ruling to sell property secured with deeds of trust, though you may. In certain circumstances it may be favorable for a lender to do so.

These deeds of trust are listed as collateral on the bank's books; used to borrow monies by the banks. So as a matter of fact the banks are listing their interest in a home on their books. The banks may also sell their interest on the mortgages they hold on the homes. In fact some believe the recent mortgage crisis was precipitated to a great extent by chopping up these mortgages and selling them as “secured” stock.


Sadly, I am an expert and I guarantee you beyond any shadow of any doubt that banks don't own mortgaged properties.

I read you argument and your points are well taken. However, the banks are at very least co-owners of the mortgaged homes. If not why does the home owner have to carry: mortgage insurance (if below a certain down payment, equity in the home)
payable to the bank, the general insurance on the home, a requirement of the bank, must list the bank as the principal payee. The owner cannot sell the home without a release from the bank which is never given until the loan is paid. And the owner is required to maintain the home, every deed of trust has these stipulations as do mortgages.


but unless you've paid in full for something, it's not technically yours.

Unless we are talking real property; here in the U.S. tons of foreclosures due to unpaid taxes, HOA fees and then there is always a possible eminent domain action.


When one makes a loan, who has ownership of the loan: the lender or the borrower? How and why?
The same question for mortgages.


If the mortgage is secured by a deed of trust, a trustee.
 OMG!WTF!
Joined: 12/3/2007
Msg: 18
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When one makes a loan, who has ownership of the loan: the lender or the borrower? How and why?
Posted: 4/22/2010 10:18:33 PM

We almost never grant mortgages in the U.S. We now most often use deeds of trust.


What? That's not true. This depends on the state you live in and the laws that govern property. Ooo fact, 14 states have property that can be purchased by placing the title in trust. The rest and majority use mortgage instruments. Titles in the 14 states that use deeds of trust may also be held partially in trust where the borrower also has a registered interest on title. Ownership rights are still granted to the buyer of the property while the title is in trust and the lender still must prove default in order to force a sale, but must only prove its case to the trustee, not a judge. The hang up with most states if I remember correctly is who gets to act as the trustee. There have been many legal battles over this and that's why not all states follow these laws. Actually, I didn't think any states used this anymore. Guess I'm wrong.


However, the banks are at very least co-owners of the mortgaged homes. If not why does the home owner have to carry: mortgage insurance (if below a certain down payment, equity in the home)
payable to the bank, the general insurance on the home, a requirement of the bank, must list the bank as the principal payee.


Geez. No they aren't. Home owners have to name the bank as first loss payable on their insurance because the bank has a stake in the property and they want their interest looked after first or they won't lend you the money. That would make it a bad investment. Would you lend money on a burned down house with half the value of the loan you're providing? Of course not. So why put yourself in that position by not requiring the appropriate insurance?

Mortgage insurance is primarily to lower the risk of lending for the banks so that they can keep rates lower for customers. Mortgage insurance only protects the bank in case of default and a short fall on the balance owing after sale. This allows the bank to lend with higher ratios of loan to value and therefore more people can own homes etc etc. It has nothing to do with banks owning the property and in fact separates them even further from ownership. It's like saying "we're not owners but have a financial investment that needs consideration because we don't own the house and have no control over the outcome of this property until a judge says so.".


The owner cannot sell the home without a release from the bank which is never given until the loan is paid.


Well yeah. Not sure about other places, but here mortgages can be assumed by other people, at times without qualifying, so that's not totally true. But again, banks requiring their loans to be paid out upon sale would further indicate that they don't own the house in any way. If they were part owners, they could decide if they wanted to keep their equity position or exit from the property completely or not sell at all. Why should an owner be able to sell without paying out the mortgage anyway? That makes no sense. Again, the bank is saying loud and clearly that "we're not the owners here! We have no say in any sale or sale price. You can sell it for ten cents if you want. But you have to pay us what you owe us first!".

There's really no question about ownership and who owns what. If it says you're the owner on the title or you hold the deed, you're the owner. If it doesn't, you're not the owner. If you're able to sell, rent, mine, improve or otherwise OWN the property because your name is on the title or you hold the deed, you're the owner. If you're not able to do these things because your name isn't on the title as the owner, you're not the owner. Banks need court permission to do these things, owners don't. What's the hang up with this? All those things the banks require, interest payments, insurance, no acts of waste being layed upon the property, repayment upon sale, qualifying etc is all seperate from ownership and exists only because banks are not in an ownership position.
 Super Ryan
Joined: 9/15/2007
Msg: 19
When one makes a loan, who has ownership of the loan: the lender or the borrower? How and why?
Posted: 4/22/2010 10:26:41 PM

According to generally accepted accounting principles (GAAP), Debits always go on the left side and credits go on the right.
For accounting purposes on the balance sheet debits ( assets) on the left, credits (liabilities) on the right. On the profit and loss sheet where revenue and expenses are listed, revenues are credit and the expenses are debits.

I can't believe I screwed that one up.
In my head I was seeing things on the proper sides, I just forgot which side is left and which was right.

The accounts receivable would increase for they are looking forward to their mortgage being repaid. Accounts payable would be money the bank has to pay to another.

Yup I messed that one up too. But if you look at my previous posts I was listing payables and recievables correctly.
I wrote it after studying for like 14 hours, so my brain was a bit fried.

We almost never grant mortgages in the U.S. We now most often use deeds of trust.

We don't really do that in Canada.
If a bank needs to forclose, they need to go through the courts and give proper notice.

If not why does the home owner have to carry: mortgage insurance (if below a certain down payment, equity in the home)

Because it is part of the contract to get the loan.
For Hollywood movies, to get funding, all the actors must be insured. This does not mean the banks own the actors, in any part.

when I say that a contract "obligates" a party to have a security available, i mean just that -- the security must be available or the contract terms have not been met

Bit of a miscommunication. I thought you were saying that the company issueing the option must own the stock, which they don't. But yes it must be possible to aquire the stock or the option is invalid.

Super, taking an accounting class or two doesn't make anyone an expert.

I believe I specifically stated I am not an expert. But I have taken a lot more then a class or two in accounting.
I'm already qualified to take the CGA, but I'm going for my CA instead.

that the question of ownership is superseded by the terms of the contract

The contract would define the ownership.

I'm starting to think we aren't disagreeing so much, as we are simply using different terms for what we mean.
 OMG!WTF!
Joined: 12/3/2007
Msg: 20
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When one makes a loan, who has ownership of the loan: the lender or the borrower? How and why?
Posted: 4/23/2010 6:37:00 AM

listen again. the seller doesn't get any money. there is NO money. ZERO. in other words, the banker doesn't go to the vault when you sell your house, for example, and say well OMGWTF just sold her house, now we have to put all this silver into her account.


Ooooh. Okay. Lima Charlie. No money. Right. Gotcha.


yes, you can go to the bank counter and say, well, i just sold my house for $100 k and now i want to withdraw $10 k in cash, ok... they will give you the cash.


But #@$%!! I thought they didn't give you any money?!? Now I'm back to being confused.

Actually I understand what you are saying completely. Our currencies aren't backed by any real wealth and essentially are worthless. I get it. I own gold too. My shot gun is beside the bed just like yours. My sack of krugerrand is safely burried in the yard. But I think you're just ahead of yourself in explaining what money is. It hasn't all hit the fan yet. Until it all does go up in flames, money has value and that 10k I get from the bank is worth 10k. I'm able to buy 10k worth of goods and services or pay off 10k worth of debt. Until that isn't the case, I don't see how you could be correct in what you're saying. I understand that bank money is generally computerized and doesn't exist in hand 24 hrs a day. That would be impossible. But enough of it does exist to fend off all out daily runs on accounts. And the fact is, it can't all exist or banks would have very little business. Our economies would collapse because nobody would be buying anything beyond what they could pay for in cash. The house of cards held up by paper assets does have real value. Wood costs money. Your house typically has wood in it. So that hard asset becomes a representation of the value your money has. I can sell my wood for symbolic wood and buy more real wood. I'd love to deposit wood in the bank, then take out my wood to build a new house, but my employees don't like being paid in wood. So we're back to the symbolic wood. It's not completely true when you're saying that because my paper dollar isn't silver it has no value. Or because banks don't store trillions of dollars worth of metals, the money you get isn't actually money. It's the exact defiinition of money.
 Super Ryan
Joined: 9/15/2007
Msg: 21
When one makes a loan, who has ownership of the loan: the lender or the borrower? How and why?
Posted: 4/23/2010 7:33:43 AM

super_ryan isn't getting it either, obviously.

Ha ha ha.
You are the one who has absolutely no clue what you are talking about.
Everything you have said sounds like it came straight out of the movie Zeitgeist.
Quit believing idiotic film students and learn the very basics of accounting, aka double entry bookkeeping.

To prove you have no idea about economics, here is a simple questions from any first year macroeconomics course.
Let's say you are running an economy. Inflation is spiralling out of control, and the only tool at your disposal is to change the tax rate. what would you do with the tax rate to bring down inflation, and why? You can't change production, you can't change government spending, and you can't change the supply of money, only the tax rate.

And by the way, it doesn't really matter if money is paper, electronic, or knots of string.
Money is a medium of exchange and has value from scarcity and our collective faith in the economy.

But back to the shoe store.
You stated:

no, "human capital" is the only real value of modern "money"...

Ok, so I buy the shoes with a credit card for $100. At the end of the day the credit card transfers the $100 to the store, and at the end of the week the store takes the $100 and pays the wages of the shoe salesmen.
There's your human capital, and a transfer of wealth.
 OMG!WTF!
Joined: 12/3/2007
Msg: 22
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When one makes a loan, who has ownership of the loan: the lender or the borrower? How and why?
Posted: 4/23/2010 11:05:33 AM

i take a certain morbid fascination in the fact that the only value money has is people's "belief" in it, and that most can't even begin to grasp the implications of their own beliefs.


There's more than just belief behind the value of money. Legally, it has to be accepted as currency. People have gone to jail for demanding other forms of payment.


because today's paper money is merely a "note"... and a "note" is evidence of a debt... and you cannot "pay" a debt *with* a debt.


I guess there is one question that might straighten this out. Imagine you're walking down a deserted path in the mountains, hils, flats or wherever one might walk wherever you live and not see another living soul for a good long time. Then you see a twenty dollar bill in the middle of the path. It can't possibly belong to anyone because there is no one around. Do you pick it up? Or do you leave it?

If it has no meaning, worth or value, you leave it.


the actual value of money is in your labor


What about passive income? I agree with you on the value of personal labour and agree that most people sell their labour too cheaply. But there's a whole bunch of capitalist pigs out there who make gobs of cash off of other people's time.
 Ailliss
Joined: 3/16/2010
Msg: 23
When one makes a loan, who has ownership of the loan: the lender or the borrower? How and why?
Posted: 4/23/2010 2:59:12 PM

What? That's not true. This depends on the state you live in and the laws that govern property. Ooo fact, 14 states have property that can be purchased by placing the title in trust. The rest and majority use mortgage instruments. Titles in the 14 states that use deeds of trust may also be held partially in trust where the borrower also has a registered interest on title. Ownership rights are still granted to the buyer of the property while the title is in trust and the lender still must prove default in order to force a sale, but must only prove its case to the trustee, not a judge. The hang up with most states if I remember correctly is who gets to act as the trustee. There have been many legal battles over this and that's why not all states follow these laws. Actually, I didn't think any states used this anymore. Guess I'm wrong.


In the U.S. we only used mortgages until a couple of decades ago when the banks, culprits that they are, figured out a way to get the home owner out a lot faster than going through a judicial procedure. As of 2008, 27 states were still using mortgages so I guess that does not make most states using DOD as I previously stated. It does mean though that 23 state use DOD exclusively. Of course, ownership is granted to the borrower on the deed. As to the trustee, that is within the language of the instrument, it is always at the discretion of the lender.


Home owners have to name the bank as first loss payable on their insurance because the bank has a stake in the property

Having a “stake” in the property is merely another manner of stating co-ownership.


In my head I was seeing things on the proper sides, I just forgot which side is left and which was right.

Lol, you are waaay too young for this!


We don't really do that in Canada.
If a bank needs to forclose, they need to go through the courts and give proper notice.


This use to be a more fair manner of treating the home owner. At least he gets a day in court and perhaps make a case for himself. With a DOD, a hearing is at the discretion of the lender. However, in these current home market trends, a non-judicial foreclosure can be of benefit to the borrower.


Money is a medium of exchange and has value from scarcity and our collective faith in the economy.

+1

There's more than just belief behind the value of money. Legally, it has to be accepted as currency. People have gone to jail for demanding other forms of payment.

+1

Without currency we would still be trading beads for honey.
The American dollar is still the most valuable currency worldwide.
Off shore banking, beautiful Cayman Islands are now a Mecca for it, exists because currency is powerful. Therefore persons wish to hoard as much of it as possible. Though due to inflation the million socked away in Swiss banks in the seventies is now worth about half of its original buying power.
 OMG!WTF!
Joined: 12/3/2007
Msg: 24
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When one makes a loan, who has ownership of the loan: the lender or the borrower? How and why?
Posted: 4/23/2010 4:10:27 PM

Having a “stake” in the property is merely another manner of stating co-ownership.


Oh for the love of Allah you are not correct. Please just pull the title to your house and see what the bloody thing says. If you're still convinced that the bank owns your house, phone them and ask them. Or do a bit of research, find something on Wikipedia that explains how banks own mortgaged property, paste it here so I can finally see what I'm just not getting. I guarantee you mortgaged property is not owned by the bank in any way, at all, period.


In the U.S. we only used mortgages until a couple of decades ago when the banks, culprits that they are, figured out a way to get the home owner out a lot faster than going through a judicial procedure


How come banks are culprits when people don't pay their mortgages? Why is this the banks' fault? Foreclosure proceeedings for deeds held in trust are essentially the same as with mortgaged properties except without the wait times involved with court procedures. Owners still get a redemption period if there is equity. And in the US, you still mostly use mortgages.


The American dollar is still the most valuable currency worldwide.


Awesome. I'll trade you American dollars straight across for your Dinars, Liras, Rials, Pounds, Lats, Euros, Manats, Canadian dollars or Cedis, anytime.
 OMG!WTF!
Joined: 12/3/2007
Msg: 25
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When one makes a loan, who has ownership of the loan: the lender or the borrower? How and why?
Posted: 4/24/2010 1:15:01 AM

The lender owns the loan and the collateral of course.
The lender holds title until the loan is paid in full.


I give I give. You're right. It's 2am, I'm Canadian, but I now understand how every state in Mexico, every last bloody state in the union and every last province and territory in Canada operates land titles. And you're all right because of the freakin' state of Georgia. God damned Georgia is the ONLY state, province or territory where the bank actually owns your property.


The deed to secure debt is a mortgage instrument used in the state of Georgia. Unlike a mortgage, a security deed is an actual conveyance of real property in security of a debt. Upon the execution of such a deed, title passes to the grantee or beneficiary (usually lender), however the grantor (debtor) maintains equitable title to use and enjoy the conveyed land subject to compliance with debt obligations.


EF you Georgia. Bull Dawgs suck.

But as for the rest of the world we know; here's an article from the LA Times that explains it much better than I ever could.


The Los Angeles Times asks “who owns your home” and then comes up with this answer:

“Most people in the U.S. buy houses using mortgage loans from banks and other lending institutions. In theory, the firm that issues your mortgage owns your property until you pay off the loan. In practice, however, that’s not how the modern mortgage business works.”

Huh? Are you kidding?

Ever look at local property records? They say that the people who own house are, ta da, homeowners and investors — not lenders.

A mortgage or a deed of trust is a lien against a property, a claim against the owner which is secured by real estate. If the owner does not repay the lien according to required terms, then the lender can foreclose.

However, when a home is foreclosed the lender is still not the owner. A foreclosure is merely a forced sale. Either the property sells for an amount sufficient to repay the loan, or the lender makes a bid to acquire title. Only if the property does not sell at auction does the lender gain ownership — in effect, the lender buys the property for the unpaid value of the loan, a price no one else is willing to pay.
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