Legal Definitions - chattel mortgage

A chattel mortgage is an older legal term that referred to a loan where movable personal property was used as collateral. Unlike a traditional mortgage which uses real estate (like land or a house) as security, a chattel mortgage involved items that could be moved, such as equipment, inventory, or valuable personal belongings. The lender would hold a legal interest in these specific movable items until the borrower fully repaid the loan. Today, these types of arrangements are more commonly known as security agreements and are governed by modern commercial laws, such as Article 9 of the Uniform Commercial Code in the United States.

Here are some examples to illustrate the concept:

• Small Business Inventory Loan: Imagine a local bookstore needing a loan to purchase a large shipment of new books for the holiday season. The bank agrees to provide the financing but requires the bookstore's entire current and future inventory of books as collateral for the loan.

  This demonstrates a chattel mortgage because the loan is secured by the bookstore's movable personal property (the books), not by the building where the store is located. If the bookstore were unable to repay the loan, the bank would have a legal right to claim the inventory.

• Financing a Commercial Fishing Boat: A commercial fisherman wants to buy a new, larger fishing boat to expand his operations but needs a loan to do so. A marine lender provides the necessary funds, taking a security interest in the fishing boat itself.

  In this scenario, the fishing boat serves as the "chattel" or movable personal property. The loan is specifically tied to this valuable asset, giving the lender the right to repossess it if the borrower defaults on the payments, much like a chattel mortgage would have operated.

• Loan Secured by a Rare Coin Collection: An individual needs a substantial personal loan for an unexpected medical expense. They offer their valuable and extensive collection of rare coins as collateral to a private lender.

  The rare coin collection represents movable personal goods that are not real estate. By using these coins as security for the loan, the arrangement functions similarly to a chattel mortgage, granting the lender a claim on the collection if the loan is not repaid as agreed.