Along with due process of law and freedom of speech, the right to own and transfer real property is held among the most important American legal freedoms. The law has developed complex rules governing real estate financing, including the ability to borrow in exchange for execution of a note and mortgage. Construction on real estate is also recognized to provide an improvement to the real estate, for the benefit of its owner. For this reason, the law of nearly every state has developed a mechanism to allow owners to finance development and construction, while balancing the rights of those entitled to be paid for improvement of the real estate. Mortgages provide a familiar example of a similar procedure.
Few people have sufficient funds to pay cash for a house.
Most go to the bank to borrow money, sign a promissory note and agree to pay back the loan. The bank advances the money, and secures its right to repayment by recording a mortgage against the real estate. You own the real estate, but the bank physically records or files a mortgage with the local Recorder of Deeds telling the world that it is entitled to be paid. This prevents anyone from buying the house without making certain that the bank is paid first. Mechanics liens work in much the same way.