Because most people cannot afford to buy real estate with cash, nearly every real estate transaction involves a mortgage. Under early English and U.S. law, the mortgage was treated as a complete transfer of title from the borrower to the lender. The lender was entitled not only to payments of interest on the debt but also to the rents and profits of the real estate. The mortgage must be executed according to the formalities required by the laws of the state where the property is located. It must describe the real estate and be signed by all owners, including nonowner spouses if the property is a homestead.
Some states require witnesses as well as acknowledgement before a notary public.
In California a deed of trust to a trustee who holds title for the lender is the preferred security instrument. At common law, if the borrower failed to pay the debt in full at the appointed time, the borrower suffered a complete loss of title, however long and faithfully payments had been made. Courts of equity, which were originally ecclesiastical courts, had authority to decide cases on the basis of moral obligation, fairness, or justice, as opposed to the law courts, which were bound to decide strictly according to the common law. Equity courts softened the harshness of the common law by ruling that the debtor could regain title even after default, but before it was declared forfeit, by paying the debt with interest and costs. This form of relief is known as the equity of redemption.