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Question:

What is ‘Chattel Mortgage’?

Answer:

Chattel mortgage is a legal term used to describe a loan arrangement in which an item of movable personal property is used as security for the loan. The movable property, or chattel, guarantees the loan in this type of mortgage. This differs from a conventional mortgage in which the loan is secured by a lien on real property.

Chattel mortgages are frequently used to help with the financing of a mobile home that is on leased land. Since the land does not belong to the owner of the mobile home, a traditional mortgage cannot be used. Instead, the mobile home is considered “personal movable property” and can be the subject of a chattel mortgage, and can serve as security for the loan. Even if the mobile home is moved to a different location, the financing arrangement can remain valid.

A chattel mortgage differs from a traditional mortgage. In a traditional mortgage, the lender may take possession of the property that serves as security if the loan is in default. With a chattel mortgage, the legal relationship is reversed and the lender does not hold a lien against the movable property (the chattel). The lender instead has had ownership of the chattel conditionally transferred to him until the loan has been satisfied, at which point the borrower resumes full control and ownership of the chattel.

Nancy J. Trube
BBA, ABR, CRB, CRS, GRI
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