What is the term for a financing instrument that creates a lien against property?

What is the term for a financing instrument that creates a lien against property?

• A. A promissory note
• B. A loan agreement
• C. A mortgage
• D. A deed of trust

Answer: (C)

The term for a financing instrument that creates a lien against property is a mortgage. A mortgage is a legal agreement in which a borrower pledges their property as collateral to secure a loan. In this arrangement, the lender gains the right to take possession of the property through foreclosure if the borrower fails to meet their loan obligations. This reflects the nature of a mortgage as it directly establishes a lien—a legal claim—against the property. In contrast, a promissory note is a document that outlines the borrower's promise to repay the loan, specifying the amount borrowed and the repayment terms, but it does not itself create a lien on the property. Similarly, a loan agreement details the terms and conditions of the loan transaction, but it does not serve as a lien against the property either. A deed of trust can function similarly to a mortgage in some states, but it operates through a third-party trustee rather than just a direct lender-borrower relationship like a mortgage. Nonetheless, in the context of creating a lien against property specifically, the mortgage is the correct financial instrument.

The term for a financing instrument that creates a lien against property is a mortgage. A mortgage is a legal agreement in which a borrower pledges their property as collateral to secure a loan. In this arrangement, the lender gains the right to take possession of the property through foreclosure if the borrower fails to meet their loan obligations. This reflects the nature of a mortgage as it directly establishes a lien—a legal claim—against the property.

In contrast, a promissory note is a document that outlines the borrower's promise to repay the loan, specifying the amount borrowed and the repayment terms, but it does not itself create a lien on the property. Similarly, a loan agreement details the terms and conditions of the loan transaction, but it does not serve as a lien against the property either. A deed of trust can function similarly to a mortgage in some states, but it operates through a third-party trustee rather than just a direct lender-borrower relationship like a mortgage. Nonetheless, in the context of creating a lien against property specifically, the mortgage is the correct financial instrument.