Legal Definitions - tacit mortgage

A tacit mortgage is a type of legal security interest that arises automatically by operation of law, rather than through an explicit written agreement or contract between parties. It grants a creditor a right over a debtor's property to ensure the payment of a debt, even without the parties formally agreeing to create a mortgage. The law itself establishes this right under specific circumstances, implying the mortgage's existence.

Here are some examples to illustrate this concept:

• Example 1: Vendor's Lien

  Imagine Sarah sells her vacation home to Mark. They agree on a purchase price, and Mark takes possession, but he still owes a final portion of the payment. In some legal systems, even if Sarah and Mark didn't explicitly write a separate mortgage agreement for the outstanding balance, the law might automatically grant Sarah a tacit mortgage, often referred to as a vendor's lien, on the property. This means Sarah has a legal right over the house to secure the remaining payment, which arises simply from the fact that she sold the property and is still owed money, not from a separate, formal mortgage contract.

• Example 2: Tax Lien

  Consider a property owner, David, who fails to pay his annual property taxes to the local municipality for several years. The law in most jurisdictions automatically creates a tacit mortgage, or a tax lien, on David's property in favor of the municipality. This security interest arises by law as soon as the taxes become delinquent, without any need for the municipality to sign a mortgage agreement with David. It ensures the government can eventually recover the unpaid taxes by potentially forcing a sale of the property.

• Example 3: Construction/Mechanic's Lien

  A construction company, "BuildWell Inc.," completes a major renovation project on an office building owned by "Corporate Holdings LLC." Corporate Holdings, however, fails to pay the final invoice for the work performed. In many places, the law grants BuildWell Inc. a tacit mortgage, often referred to as a mechanic's lien or construction lien, on the renovated property. This legal right arises automatically from the fact that BuildWell Inc. provided labor and materials that improved the property, and they have not been paid. It serves as security for the debt, allowing BuildWell Inc. to potentially force the sale of the property to recover their costs, even though Corporate Holdings LLC never signed a mortgage document with them.