The short definition of a mortgage is that it's a loan used to purchase real property. In Alabama, the mortgage is comprised of two parts: the security instrument and the promissory note. A security instrument is a specific type of document that provides security for the lender and contains terms (agreements) that apply until the buyer (borrower) repays the lender according to terms defined in an attached promissory note.

While the lender holds legal title to the property during this time, the borrower holds equitable title, which means they may occupy the property as if they hold legal title, but until the loan has been repaid, the lender actually owns it. This is because mortgages involve a lien against the property, held as security, that ends when the debt is repaid, and the owner assumes legal title (after recording a release of mortgage).

The buyer must also complete a promissory note. A promissory note is a negotiable instrument that contains an unconditional written promise, signed by the borrower, to repay the lender or its designated agent. It defines the amount and specific terms of the loan between the borrower and the lender and must be completed at the same time as the security instrument. Many lenders retain the promissory note for the duration of the mortgage and return it to the borrower after the debt is repaid.

The Code of Alabama sets forth the rules for mortgages in that state at Title 35 Section 10 but does not provide a statutory form for security instruments. A typical mortgage includes the names of all borrowers (and their spouses, if applicable), information about the lending institution, the date the borrower signed the promissory note, the property county and address, and a legal description of the property. The borrower must indicate if the security instrument includes any riders, or attachments that amend or supplement a document.

The mortgage must be signed by each borrower and acknowledged by an authorized individual. Alabama requires spouses' signatures for mortgages of single-family owner-occupied dwellings ("homestead mortgages"), even if they are not borrowers (Ala. Code Sec. 6-10-3). A homestead is defined in Alabama as a single-family owner-occupied dwelling.

Security instruments must meet standards of form and content for recording documents relating to real property. Record the completed mortgage at the local probate office.

Secured Promissory Notes in Alabama

At the same time the buyer fills out the mortgage form, they must also complete a promissory note. A promissory note is a negotiable instrument that contains an unconditional written promise, signed by the borrower, to repay the lender or its designated agent. It defines the amount and specific terms of the loan between the borrower and the lender.

Promissory notes can be secured or unsecured. Unsecured notes set forth the terms and conditions associated with repayment, but there is no mention of collateral to protect the lender's interest. These are more common with personal property. Mortgages, which are real property transactions, use secured promissory notes. The borrower offers the property as security (collateral) to guarantee the loan and agrees that a failure to repay the loan could cause the lender to foreclose on it.

The borrower must complete a promissory note, but it is rarely recorded with the mortgage. Many lenders retain the note for the duration of the mortgage and return it to the borrower after the debt is repaid. If the situation demands a recorded promissory note, ensure that it meets all state and local standards for submitting documents.

Use these forms to finance residential property, condominiums, planned unit developments, vacant land, small commercial and rental property up to 4 units (more than 4 units add our "Assignment of Rents and Leases" form). This mortgage contains a power of sale clause, allowing for a non-judicial foreclosure, saving time and expense for the lender. A Promissory Note secured by a Mortgage that include stringent default terms can be beneficial to the lender.

Section 35-10-1 - Power of Sale Constitutes Part of Security; by Whom Executed; Effect of Conveyance; Index of Foreclosure Deeds. Where a power to sell lands is given to the grantee in any mortgage, or other conveyance intended to secure the payment of money, the power is part of the security, and may be executed by any person, or the personal representative of any person who, by assignment or otherwise, becomes entitled to the money thus secured; and a conveyance of the lands sold under such power of sale to the purchaser at the sale, executed by the mortgagee, any assignee or other person entitled to the money thus secured, his agent or attorney, or the auctioneer making the sale, vests the legal title thereto in such purchaser. Probate judges shall index foreclosure deeds by the names of the original grantor and grantee in the mortgage, and also by the names of the grantor and grantee in the foreclosure deeds.

This article is provided for informational purposes only and is not a substitute for the advice of an attorney.

(Alabama Mortgage Package includes forms, guidelines, and completed examples) For use in Alabama only.

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