Chattel refers to property which is associated with movable assets. This includes items such as movable machinery, furniture, jewelry, securities, vehicles, etc. Another best way of defining chattel is a property that is not attached to the land or to a real estate. In other words, chattel is personal property that is movable and at the same time tangible.
A Little More on What is a Chattel
Chattel property can be borrowed against using a chattel mortgage. A chattel mortgage refers to a finance agreement where the money is provided to buy an asset. In this case, the chattel is accepted by a financial institution as security to the loan it is willing to offer.
Note that in accounting, the chattel property also known as, personal property, is separately tracked from either improvement made to land or from land itself because of its nature of depreciating fast. Also, rights that apply to chattel and those that apply to real estate are considered different by the legal system. Real property rights are usually difficult to overturn and they do have limitations’ statutes that are longer.
When it comes to financing, the value of chattel decreases rapidly and it cannot be increased through improvements. A good example of chattel is a car. Once you buy and start using it, its value will continue depreciating with time. Any repairs done to improve its appearance and functionality, does not in any way increase its value.
This is contrary to real property where any improvement or renovation done to it, will always increase its value. A good example of this is a building. When its features are improved through renovations, then its value will automatically increase. This explains why there is a difference on how real estates (real property) and chattel are treated in terms of taxation as well as in other financial valuation.
The Chattel Mortgage
Chattel mortgage offers self-supporting property beside a home as security for a loan. In other words, the lender (in this case a bank), will give out a mortgage loan in exchange for a chattel. The bank will acquire the legal ownership of the chattel until that time when the owner clears the mortgage loan he secured with the bank. Only then can he or she be able to claim back the ownership of the chattel from the bank.
Generally, chattel mortgages are mostly used by firms whenever they want to purchase an asset. They usually give out their equipment, vehicles and any other valuable personal assets to act as collateral, whenever they seek to secure a mortgage loan with a financial institution.
Note that since the ownership of chattel is transferred to the bank whenever it provides a mortgage loan to the lender, then it means that it has the right to sell the personal property in order to recover its money, in the event that the lender fails to repay back the loan.
The Chattel Paper
Chattel paper is a written document that comprises detailed information regarding the borrower’s financial commitment as well as the creditor’s security interest details.
Why Chattel Mortgage could be your Better Option?
The most important part of the chattel mortgage is that it gives you an opportunity to acquire a loan without necessarily putting your home or real estate on the line. A home or real estate is a valuable asset and losing it to a lender because you have failed to honor the loan obligation as a borrower, is a big blow.
Generally, chattel mortgage gives you a better option where you can use your personal property to secure a loan instead of using your home as collateral. Chattel or as commonly known, personal property, after all, does depreciate its value with time, and losing it won’t be that much of a loss compared to losing a real estate or a home to a lender.