Loan Modification

You signed the mortgage but not the note. So what?

By Chip Parker, Jacksonville Consumer Attorney

As a foreclosure defense attorney, I am often asked about the difference between a note and mortgage in the context of a foreclosure.  If you think back to the day you closed on your home loan, you can probably recall signing a bunch of papers, none of which you read or understood.  That?s pretty common.

Well, when it comes to the purchase of real estate, there are only three documents that you need to understand:  The deed, the note and the mortgage (a.k.a. ?Deed of Trust?).

The deed is the document evidencing ownership of the real property, and the grantor or seller of the property signs it.  Anyone named on the deed as the grantee has an actual ownership interest in the property described therein.

The note is the actual debt obligation.  It is signed only by the borrower and is physically delivered to the lender or ?originator.?  The note is a naked obligation to owe money, and is not much different than any general debt.

The mortgage is a pledge of collateral (ie. the real property described in the deed) to secure the debt obligation evidenced by the note.  It is a blanket that wraps around the note and gives it security.  In essence, the mortgage says, ?If I default under the terms of the note, you will not have to chase me down and find my assets.  Instead, I pledge to you this piece of property you can take and sell for enough cash to satisfy the terms of the note.?

Often, only one spouse will sign the note, but both will sign the mortgage.  This means that only the spouse signing the note will be held liable for the debt, and in the event of non-payment, only that spouse will have a foreclosure show up on his or her credit.  The spouse who only signed the mortgage is essentially saying, ?I pledge whatever interest I own in the home to secure the promissory note signed by my spouse.?

Because a foreclosure is used to gain clear title to real property, every person or entity with an interest in the property must be named in the suit ? even tenants and judgment creditors.  So, just because a spouse is ?being sued,? it does not necessarily mean that the spouse is liable for anything.  If the spouse signed the mortgage only, his or her inclusion is just for the purpose of the lender taking the interest in the home.

A spouse who did not sign the note has every right to fight the foreclosure or even file bankruptcy to stop the foreclosure, regardless of whether the obligated spouse chooses to fight or file.  This is especially important to keep in mind where the spouses are now divorced or if the obligated spouse has died.

Related posts:

1. Missouri Court Weighs In on ‘Show Me the Note’
2. Most plaintiffs never ?hold? the original mortgage note
3. Mortgages and Divorce–A Match *Not* Made In Heaven

Full post as published by Mortgage Law Network on December 31, 2009 (boomark / email).