There is no shortage of
paperwork involved in a foreclosure. I have found that some of my best
educated, most informed clients do not understand all of the important
documents involved in the purchase of a home and subsequent foreclosure.
Here is a quick overview of these items.
Promissory Note
When a home is purchased, the buyer
signs a contract with his or her lender to borrow money to buy the home.
This contract is called a promissory note. In it, the
borrower promises to repay the lended money with interest over a period of
time. An important feature of a promissory note is that it may--and
probably will--be transferred to another person or entity. This
person or entity is permitted to enforce this agreement just as the original
lender could. Transfers of a promissory note are often made with endorsements,
that assign the debt to another entity. These endorsements can be found
on the note itself or another slip of paper, called an allonge.
Pursuant to the Supreme Judicial
Court's landmark Eaton v. Federal National Mortgage Association case,
the foreclosing entity needs to be the holder of this note at the time of
foreclosure. This, however, only applies to foreclosures occurring after
June 22, 2012.
Someone who signs a promissory note
is on the hook for repaying the borrowed money. However, a borrower can
discharge (ex. "wipe out") this debt in bankruptcy. Because
of this fact, the lender will want additional protection for their investment,
also known as security. This is the reason for a mortgage.
Mortgages
A mortgage is a
security interest that allows a lender
to repossess ("foreclosure") the underlining property if
the debt is not repaid. While it is common for homeowners to talk about
paying their mortgage when making payments on their home, they are actually
referring to the mortgage loan. A mortgage is merely the
lender's means of protecting its financial investment.
In Massachusetts, mortgages are
almost always recorded in the local county's Registry of Deeds. These can
be found online at www.masslandrecords.com.
Just like your promissory note, your
mortgage can--and almost certainty will--be assigned throughout the
life of your loan. In another landmark decision, the Supreme Judicial
Court in U.S. Bank v. Ibanez held that, at the
time of foreclosure, the foreclosing entity must have record assignment of the
mortgage. Anyone involved in one of these cases should
therefore review their mortgage assignments carefully to see if this
requirement has been complied with.
Mortgage Assignments
Mortgages are often assigned
throughout the life of a loan. Like mortgages, these assignments are
almost always recorded in the Registry of Deeds. In a typical mortgage
assignment, the grantor (the person or entity giving the
assignment) assigns the mortgage to the grantee (the person or
entity receiving the assignment).
Deeds
A deed is the document that passes
property ownership to another person or entity. When a home is purchased,
the seller deeds the property to the buyer through a quitclaim deed (the
standard type of deed in Massachusetts).
When a home is foreclosed, the
foreclosing entity records a foreclosure deed that passes
ownership of the property from the prior homeowner to the person or entity who
purchased the property at the foreclosure sale (typically the entity who held
the mortgage and conducted the foreclosure sale).
