Mortgage bond is a bond that has been backed by a pledge of real property. The corporation will issue bonds to investors and the corporation will pledge real estate, owned by the company, as collateral.
Applying "Mortgage Bond" to Securities Exams:
A mortgage bond works in a similar fashion to a residential mortgage. If a corporation wants to purchase a plant or a corporate office building the corporation will borrow the money not through a traditional mortgage but through the sale of mortgage bonds. In the event of default, the Trustee will liquidate the property for the benefit of the bondholders.