Chattel Mortgage

Definition

A chattel mortgage is a type of loan agreement in which personal property (as opposed to real property) is used as collateral to secure the repayment of a debt or the performance of some other obligation. The term “chattel” refers to movable personal property. This type of mortgage differs from others because it involves personal property rather than real property.

Although chattel mortgages have largely been replaced by security agreements under the Uniform Commercial Code (UCC), they are still used in certain situations such as the financing of mobile homes, construction equipment, and certain types of business machinery.

Examples

Equipment Financing: A business might take out a chattel mortgage to secure a loan for purchasing new machinery. The machinery would serve as the collateral.
Vehicle Loans: Personal loans for vehicles such as cars or boats can be secured through a chattel mortgage using the vehicle itself as collateral.
Mobile Homes: A loan taken out to purchase a mobile home may be secured by a chattel mortgage, with the mobile home serving as collateral.

Frequently Asked Questions

What types of property can be used in a chattel mortgage?

Personal property such as vehicles, machinery, equipment, and mobile homes can be used as collateral in a chattel mortgage.

How is a chattel mortgage different from a traditional mortgage?

A traditional mortgage uses real property (real estate) as collateral, whereas a chattel mortgage uses personal property as collateral.

Can a borrower still use the personal property when it is secured by a chattel mortgage?

Yes, the borrower can continue to use the personal property, but the lender holds the title as security until the loan is paid off.

What happens if the borrower defaults on a chattel mortgage?

If the borrower defaults, the lender has the right to seize and sell the personal property used as collateral to recoup the debt.

Are chattel mortgages still common today?

While chattel mortgages have decreased in usage due to the adoption of security agreements under the UCC, they are still used in certain specific situations, like vehicle and equipment financing.

Security Agreement: A legal document that provides a lender a security interest in an asset or property that is pledged as collateral.
Uniform Commercial Code (UCC): A set of laws that provide legal rules and regulations governing commercial or business dealings and transactions.
Collateral: An asset that a borrower offers to a lender to secure a loan.

Online Resources

Suggested Books for Further Studies

“Secured Transactions in Personal Property” by Steven L. Harris, Charles W. Mooney Jr., Steven D. Walt - A comprehensive guide on the topic of secured transactions involving personal property.
“Uniform Commercial Code in a Nutshell” by Bradford Stone, Kristen David Adams - Provides an overview of the UCC and its implications for various types of secured transactions.
“Modern Real Estate Practice” by Fillmore W. Galaty, Wellington J. Allaway, Robert C. Kyle - Offers insight into various real estate practices, including chattel mortgages within the field.

Fundamentals of Chattel Mortgage: Finance Basics Quiz

### Can a chattel mortgage be applied to both real property and personal property? - [ ] Yes, both real and personal property can be used. - [x] No, only personal property can be used. - [ ] It depends on the lender's requirements. - [ ] None of the above. > **Explanation:** A chattel mortgage specifically applies to personal property. Real property is secured using a different type of mortgage. ### Which code largely replaced the chattel mortgage with security agreements? - [ ] Bankruptcy Code - [x] Uniform Commercial Code (UCC) - [ ] Tax Code - [ ] Real Estate Code > **Explanation:** The Uniform Commercial Code (UCC) largely replaced chattel mortgages with security agreements. ### What happens to the collateral in a chattel mortgage if the borrower defaults? - [ ] The borrower keeps the collateral. - [x] The lender seizes and sells the collateral. - [ ] The collateral is auctioned by the court. - [ ] The borrower can still use the collateral. > **Explanation:** If the borrower defaults on a chattel mortgage, the lender has the right to seize and sell the collateral to recoup the debt. ### What type of chattel is commonly used in vehicle loans? - [ ] Houses - [ ] Land - [x] Cars or boats - [ ] Grocery stores > **Explanation:** Vehicles such as cars or boats are common types of personal property used as collateral in chattel mortgages. ### Which of the following is an example of a chattel mortgage? - [ ] Mortgage for a house - [x] Loan secured by business machinery - [ ] Mortgage for an apartment - [ ] Loan secured by a piece of land > **Explanation:** A loan secured by business machinery is an example of a chattel mortgage since it involves personal property. ### What must a borrower provide to secure a chattel mortgage loan? - [x] Personal property - [ ] Real property - [ ] Insurance policy - [ ] Personal guarantee > **Explanation:** To secure a chattel mortgage loan, the borrower must provide personal property that serves as collateral. ### Why is a chattel mortgage called 'chattel'? - [ ] It refers to real estate. - [ ] It is a type of court order. - [x] It pertains to movable personal property. - [ ] It is a financial instrument. > **Explanation:** The term "chattel" refers to movable personal property. ### What is another name for the personal property used as collateral in a loan? - [ ] Domain - [ ] Bond - [x] Collateral - [ ] Lease > **Explanation:** The personal property used as collateral in a loan is also referred to as collateral. ### Which term explains a legal document providing a lender interest in an asset? - [x] Security Agreement - [ ] Deed - [ ] Warranty - [ ] Affidavit > **Explanation:** A security agreement provides a lender a security interest in an asset or property which is pledged as collateral. ### What legal rules govern the commercial dealings related to chattel mortgages? - [ ] Residential Code - [ ] Commercial Lease Agreement - [x] Uniform Commercial Code (UCC) - [ ] Consumer Protection Act > **Explanation:** The Uniform Commercial Code (UCC) provides the legal rules governing commercial dealings related to chattel mortgages.

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