Chattel: Definition, How It Works, Chattel Mortgages, & Examples

What Is Chattel?

Chattel is personal property that is movable between locations, as opposed to real property, which has a fixed location. Common examples include mobile homes, furniture, and automobiles. This article explains what chattel is and how it is used as security in chattel mortgages.

Understanding Chattel

In the legal and financial world, chattel refers to movable personal property. Chattel's value can drop rapidly due to depreciation, as is often seen with new cars, and typically does not increase with improvements or renovations.

For these reasons, chattel property is treated differently from real estate for tax and accounting purposes.

Additionally, legal systems treat the rights to chattel property differently from the rights to real property. The rights to real property typically have longer statutes of limitations and are harder to overturn.

How Chattel Works

As mentioned, the primary difference between chattel and real property is that chattel is movable while real property is fixed permanently to one specific location.

In general, chattel refers to tangible property, or property that has a physical presence and can be seen or touched. However, in some instances, chattel may also be intangible property. Examples of intangible property include leases, financial assets, trademarks, patents, and other intellectual property.

In property law, the distinctions between property types have important implications both in terms of tax consequences and ownership rights. For instance, property rights on chattel are generally weaker and less enforceable than an owner's rights to real estate.

What Is a Chattel Mortgage?

A chattel mortgage is a mortgage on movable property that uses the property as collateral to back the loan. When the mortgage is issued, legal ownership of the chattel is transferred to the lender. The mortgage is removed when the loan is repaid.

Chattel mortgages often have higher interest rates than other types of mortgages. You may also hear this form of financing referred to as a security interest, security agreement, or trust receipt. In its definition of chattel mortgage, Cornell Law School's Legal Information Institute refers to it as an "antiquated term."

The contract that spells out the financial obligations of the borrower and the security interest held by the lender or other creditor is often referred to as a chattel paper.

In the United States, chattel mortgages, by whatever name, are governed by Article 9 of the Uniform Commercial Code (UCC) and any applicable state laws.

Examples of a Chattel Mortgage

Mobile homes that are set up on leased land can be financed using mobile home loans, a form of chattel mortgage. The mobile home serves as collateral, and the loan can stay in place even if the mobile home is moved to another plot of land.

Businesses can also use chattel mortgages to purchase new equipment from the manufacturer or another seller. For example, a company might buy a piece of heavy machinery from a seller that will agree to finance it over a number of years. Until the loan is paid off, the seller will want to keep a security interest in the machinery just in case the buyer defaults. A chattel agreement will allow the buyer to use the equipment, while protecting the seller's financial interests at the same time. If the buyer is unable to keep up with the payments, the seller can seize and sell the property to recoup at least a portion of the money the buyer still owes.

The Bottom Line

Chattel is property that is mobile and can be used as collateral to back a chattel mortgage. If you are considering buying property with a chattel mortgage, be sure to review all your options and compare interest rates and terms as you would with any other loan.