Definition of Leasehold Mortgage
Fee mortgage or leasehold mortgage?
Fee Simple vs. Leasehold
With a "fee simple" mortgage, a lender can take over ownership of the property if the borrower defaults. With a leasehold mortgage, the lender only has a claim on the "leasehold estate," according to the American Bar Association. Typically that means that the lender's lien covers the buildings, but not the land itself.
If a borrower goes bankrupt, the lender's demands for payment are legally subordinate to any claims of the property owner. In addition, if there are any liens on the land--for instance, if the owner has defaulted in his own mortgage--they take priority over the leasehold lender, according to Goliath Business News. This makes leasehold
mortgages riskier than fee simple mortgages.
Subordinating the Fee
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