What is Chattel?

Chattel is the movable personal property that can be either animate or inanimate property such as hogs, furniture, and automobiles. This property can be borrowed against using a chattel mortgage. Chattel property and other personal property is tracked separately from land or improvements made to land because it can be depreciated more quickly.

Additionally, legal systems consider the rights to chattel differently than rights afforded to real property. The rights to a real property typically having longer statutes of limitations and being harder to overturn.

Chattel comes from the French word "chatel," which comes from the Latin word "capitale."

Understanding Chattel

In the financial world, chattel refers to movable personal property such as jewelry or furniture. Chattel’s value drops rapidly due to depreciation, as often seen with the purchase of a car, and typically does not increase with improvements.

Real property is different, as it increases in value through improvements and renovations. For this reason, a chattel property is treated differently than real estate for taxation and other financial assessments.

A chattel mortgage affords freestanding property—other than the home—as collateral for a loan. The lender secures the mortgage on the chattel, and legal ownership of the chattel is transferred to the lender. The mortgage is removed when the loan is repaid.

In real estate transactions, a seller may take all chattel from the home but fixtures must remain in place for the buyer.

Example of a Chattel Mortgage

Mobile homes are financed using chattel mortgages that are set up on leased land. Unlike traditional mortgages, a chattel mortgage only pertains to "personal movable property." In addition, the actual mobile home acts as a form of collateral, and the loan can stay in place, even if the mobile home is moved to another plot of land.

Chattel mortgages are secured loans, and often have higher interest rates than traditional mortgages. You may also hear this form of financing referred to as a security interest or a trust receipt.

Business Use

A chattel paper is a document containing information about the financial obligation of the borrower and the security interest held by the creditor.

Businesses frequently use chattel mortgages to purchase new equipment. Heavy machinery has a long lifespan, and its purchase can be financed over a period of time by the seller, but the seller will want to keep a security interest in the machinery in the event of default.

A chattel agreement will allow the buyer to use the equipment while maintaining a safe position for the seller at the same time. The seller can recover the equipment and sell it to recover losses from the loan balance in the event that the buyer defaults.

Key Takeaways

  •  Chattel is a form of movable personal property, like a manufactured home or even jewelry.
  • Individuals who want to purchase a mobile or houseboat (both considered chattel) can use chattel mortgages to buy the properties.
  • Companies use chattel mortgages to buy property, and they authorize equipment, vehicles, and other assets as collateral.
  • If the company defaults on the loan, the lender is compensated by selling the chattel.