Definition
A submortgage is a financing arrangement in which a mortgagee — a party who holds a mortgage as security for a loan already made — uses that mortgage interest as collateral to obtain a new loan from a third party. The original mortgage is pledged, not transferred outright, to secure the mortgagee's own borrowing. The result is a layered security structure: the original mortgagor still owes the mortgagee, and the mortgagee now owes the third-party lender, with the mortgage instrument itself serving as the security for the second obligation.
The submortgage does not extinguish or assign the underlying mortgage in the way a full assignment would. Instead, the mortgagee retains the mortgage relationship with the original mortgagor while creating a subordinate pledge of that interest to a new creditor. If the mortgagee defaults on the submortgage loan, the third-party lender's remedy runs against the mortgagee's interest in the underlying mortgage, not directly against the original mortgagor's property.
Common Confusion
A submortgage is frequently confused with a mortgage assignment. In an assignment, the mortgagee transfers the mortgage interest entirely to a new party, who steps into the mortgagee's shoes. In a submortgage, no such substitution occurs — the mortgagee remains the holder of record and the obligee of the original loan. The third party acquires only a security interest in the mortgage, not ownership of it. The distinction matters practically: an assignee can enforce the mortgage directly against the mortgagor; a submortgagee typically cannot, at least not without first proceeding against the mortgagee's interest.
A submortgage should also be distinguished from a participation agreement, in which multiple lenders share in a single mortgage loan by agreement, rather than one lender pledging a mortgage to secure a separate personal obligation.
Why It Matters in Research
The submortgage is a relatively specialized instrument and appears infrequently in modern legal literature, which makes historical dictionary sources the primary point of entry. Researchers should be aware of several navigational considerations.
First, the term appears inconsistently across jurisdictions and time periods. Some courts and treatises treat the submortgage as a distinct doctrinal category; others analyze the same arrangement under general principles of pledge or collateral assignment without using the term at all. A search limited to "submortgage" as a keyword will miss a significant portion of relevant authority.
Second, the layered structure of a submortgage raises questions that overlap with several bodies of law: the law of pledges (governing the mortgagee's delivery of the mortgage instrument to the submortagee), the law of negotiable instruments (if the underlying mortgage note is pledged alongside the mortgage), and notice and recording requirements (whether the submortgage must be recorded to be effective against third parties). Researchers should pursue each of these threads independently.
Third, the concept connects to priority disputes. If the mortgagee pledges the same mortgage interest to multiple parties, or if the original mortgagor refinances without knowledge of the submortgage, priority questions arise that may be governed by recording act principles rather than the internal logic of the submortgage arrangement itself.
Fourth, in historical sources predating systematic treatment of secured transactions, the submortgage was sometimes used as a practical workaround for restrictions on the free assignability of mortgages. Understanding the context in which historical cases arose — including what was and was not freely assignable in that jurisdiction at that time — is essential to reading those authorities accurately.
Historical Dictionary Support
Both Black's Law Dictionary and its second edition define submortgage in nearly identical terms, describing it as the arrangement by which a mortgagee "procures a loan to himself from a third person, and pledges his mortgage as security." The second edition reproduces the same definition with only a typographical variation in the term itself ("submortguge"), which appears to be a printer's error rather than a variant spelling of legal significance.
The two sources agree on the essential structure: the pledging party is the mortgagee (not the original borrower), the collateral is the mortgage interest (not the underlying property), and the transaction is a pledge (not a transfer). Neither edition elaborates on remedies, priority, or recording requirements, which reflects the brevity typical of Black's definitional approach and leaves those questions for treatise research.
What the historical dictionaries do not address is the relationship between the submortgage and the underlying mortgage note. In practice, the two are often pledged together, and the legal treatment of the note — particularly whether it qualifies as a negotiable instrument — may substantially affect the rights of the submortgagee. This gap in the historical dictionary coverage means researchers should not treat Black's definition as a complete doctrinal account.
Jurisdictional Note
The enforceability and procedural mechanics of a submortgage vary by jurisdiction, particularly with respect to recording requirements and whether the submortagee must be joined in or notified of foreclosure proceedings involving the underlying mortgage. Some states have addressed these questions by statute; others leave them to common law development. Researchers working in a specific jurisdiction should verify whether local recording acts treat a pledge of a mortgage as requiring separate recordation to be effective against third-party creditors.