Most homeowners buy their home with the assistance of a loan, from a lender, in exchange for a signed deed promising to repay the loan and interest. The written promise secures the borrower's home to the lender and is known as a mortgage deed. All references to mortgages in this article are to mortgages over freehold homes in Bermuda.

Another way to mortgage a home is by way of "deposit of deeds", without a mortgage deed. A deposit of deeds used to offer stamp duty advantages and so was popular. Nowadays there are no such advantages and so a deposit of deeds is less often used, especially as the lender's security may be questionable.

A mortgage usually provides for loan and interest installments to be paid in one or more ways known as:

• Amortised (the most common) the loan and interest is extinguished by monthly installments over a set period of time. Often such mortgages provide for the loan to be repaid on notice and so the distinction with demand mortgages has become blurred.

• Demand can be for monthly interest installments only, or for the loan and interest installments. There is no set period of time and the loan is repayable in one further installment, at the lender's demand and without notice. Such mortgages are like amortised mortgages because the loan may be amortised over a set period of time, with the difference that the installments may not repay the whole of the loan at the end of the period. The loan is repaid by the outstanding lump sum of the loan known as a "balloon" payment.

• Interest only less common in Bermuda and usually for developers only. Essentially, they are a postponed demand mortgage.

The mortgage deed will typically require the borrower to promise to:

l repay the loan with interest;

lnot sell or rent out the home, without the lender's permission;

• maintain the home properly, so that the home is saleable if the borrower defaults; and

• keep the home insured, so the home can be repaired if damaged and so is saleable.

If a borrower's promise is broken, the right to occupy the home is lost. The lender may obtain a court order, to require the borrower to leave the home and for the home to be sold.

By virtue of a mortgage deed a lender becomes a secured lender. This means that the sale proceeds of an insolvent borrower's home go first to pay off the secured lender's loan; any proceeds left over (if any), are available for unsecured creditors.

A first mortgage of a home transfers "the legal estate", to the secured lender. The borrower has a right to occupy the home and a right to have the home transferred back, when the mortgage loan is repaid with interest.

Second and subsequent mortgages transfer a home subject to the first mortgage. The first lender will already hold the legal estate in a borrower's home, and so second and subsequent secured lenders can only have what is known as "the equity of redemption".

Second and subsequent mortgages are less desirable to lenders because if a borrower is in default:

• the first secured lender will have to sell the home (and may be reluctant to do so); and

• only sale proceeds left over, after repayment of the first mortgage, will be available to second and secured subsequent lenders.

In Bermuda mortgages should be protected by registration at the Registry General. Lenders with unregistered mortgages may have difficulties.

Happily, most mortgage loans are diligently repaid and so lenders rarely have to go to court. After a mortgage loan is repaid, the borrower should ask an attorney to prepare a deed of reconveyance, which transfers the legal estate in the home back to the borrower, who now truly becomes a homeowner.

When a home is mortgaged the secured lender should safely store the deeds. Once a loan is repaid the homeowner typically takes delivery of the deeds. Homeowners should deposit deeds with an attorney or a bank and not keep deeds at home.

Without proper and complete deeds a home is less marketable and will not be good for a mortgage. If deeds are lost or destroyed, an attorney can most likely assist.

Attorney Neil Molyneux is a member of the Property Practice Group of Appleby. A copy of this column is available on the firm's web site at www.applebyglobal.com.

This column should not be used as a substitute for professional legal advice. Before proceeding with any matters discussed here, persons are advised to consult with a lawyer.