Mortgage Assignment Laws
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What Is an Assignment of Mortgage?
A mortgage assignment, or “assignment of mortgage”, is a type of agreement where a borrower transfers their loan obligations to a third party. The newer lender “stands in the shoes” of the old lender and assumes the rights and duties associated with the mortgage agreement. This is similar to the idea of contract assignments in other areas of law.
When a mortgage assignment occurs, the bank or lending institution will usually want to retain some of their rights even after the transfer, such as their right to foreclose on the home in the event of non-payment. The bank’s rights may need to be recorded in a separate document from the one that assigns the mortgage to the third party.
What Are the Requirements for an Assignment of Mortgage?
The requirements for an assignment of mortgage is usually a document which includes all the information necessary to transfer the original lender or borrower to a third party. Banks usually assign the mortgage to new bank by selling and buying mortgages to each other. Assignments are required to contain the following information:
- The name of the assignor (current owner of the mortgage)
- The name of the assignee (the new owner taking the mortgage)
- The names of the borrowers
- The date of the mortgage
- The mortgage balance amount
- The original mortgage record information
- The property's legal description
The assignment of mortgage to the new entity must also be recorded in the same government office who handles the county records for that property. If the assignment is not properly recorded by the new entity, then they would not have the ownership right to foreclose. In some cases, an improper assignment of mortgage will not stop a foreclosure if the foreclosing party has the promissory note secured by the mortgage since the owner of the promissory note has the legal right to collect the debt.
Should Mortgage Assignments Be Recorded?
In order to prevent confusion or a “cloud” on the property title, it’s important that any mortgage assignments be recorded with the county recorder’s office. This is the place that stores and maintains records of property titles and transactions affecting deeds and titles.
Generally, a title search at the recorder’s office is supposed yield information as to whether there has been an assignment of mortgage rights. Any records of an assignment can affect subsequent legal proceedings, such as a foreclosure proceeding or a judicial lien hearing.
What Are Some Benefits and Drawbacks of Mortgage Assignments?
One of the main benefits of a mortgage assignment is that it may allow property that’s been on the market for a while to be sold. In many cases, mortgage assignments allow buyers to purchase a house without having to contact a bank or lending institution for a loan, since they can just have the previous party’s mortgage duties assigned to them.
Most banks understand the need for mortgage assignment and may even offer special packages for the transfer process.
On the other hand, one of the main drawbacks of mortgage assignments occurs where the assignment isn’t written down or recorded with the county. This can create confusion as to which parties are responsible for mortgage payments or for back debt payments. Also, non-payment of the monthly amounts owed can create issues, especially where the original lender was already in debt when they assigned the mortgage.
What Is the Difference between a Mortgage Assignments and a Transfer of the Note?
A loan transaction consists of two documents: a mortgage and a promissory note. There is a difference between a mortgage and a promissory note.
- Mortgage: A mortgage ( or a deed of trust) is the document that pledges the property as a security for the mortgage debt and allows the lender of the mortgage to foreclose on the property if borrower fails to make monthly payments.
- Promissory Note: A promissory note is a IOU document that evidences the borrowers promise to repay the loan debt. The owner of the promissory note has the legal right to collect the debt.
When a mortgage is transferred or assigned to a third party, the mortgage is then recorded by the new bank or lender who has right to collect the debt. The promissory note will also be signed over by the borrower. Homebuyers usually think the mortgage is the contract that is enforceable to collect a debt, however the promissory note contains the promise to repay the amount.
What Are Some Defenses to Mortgage Assignments?
Sometimes banks will sell or buy mortgages from other banks and the mortgage will be assigned to a new bank. The bank is required to record the mortgage assignment and also have the promissory note signed over to retain possession of the loan.
One defense a homeowner may use when the bank is foreclosing on the property is the "produce the note" defense. In this defense the homeowner is demanding the foreclosing bank to produce the original promissory note to prove that they are the true owner of the mortgage debt and has the legal right to foreclose. There are times when the new bank does not do the proper paperwork to prove that they own the note and the mortgage.
Do I Need a Lawyer for Help with Mortgage Assignments?
Like any mortgage contract, assignments generally require the assistance of a lawyer. Since they involve several different parties, mortgage assignments can sometimes be complicated. You may wish to work with a real estate lawyer in your area if you need assistance with a mortgage assignment or other legal issues. Also, if you will be purchasing a home, a lawyer can help you conduct a title search to determine if there are any outstanding assignments or debts associated with the property.
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A mortgage lender can transfer a mortgage to another company using an assignment agreement. This document, called an assignment of mortgage, transfers the mortgage account and all of the interest the original lender had under the loan to a new lender. Many banks and mortgage lenders sell outstanding loans in order to free up money to lend to new borrowers, and use an assignment of mortgage to legally grant the loan obligation to the new mortgage holder.
An assignment of mortgage must contain several items of information. The original mortgage recording information, or document identification numbers the loan papers received from the county recorder's office, is listed. The names of the borrower, date the mortgage was dated and filed and the amount the mortgage was for when taken out are also shown. Most assignments will also give the legal description, or paragraph used to describe the property on legal documents, of the real estate secured by the mortgage.
Notice to Borrower
The original mortgage lender does not have to send notice before assigning a mortgage, and the permission of the borrower is not required. The new mortgage company does have to send a letter or notice to the borrower about the assignment of the loan. This document will include the lender's identity and contact information, as well as all customer service and payment methods available.
When a mortgage is assigned, all of the original features of the mortgage remain the same. The interest rate, amount owed, monthly payment and payment schedules will not change. Any adjustments to an escrow account, which is a portion of the mortgage payment used to pay taxes and homeowner's insurance premiums, that result in a higher or lower mortgage payment are still done in accordance with the original escrow agreement. However, the new lender can make some modifications at the request of the borrower and at the lender's discretion, such as an additional payment method.
Effects on an Escrow
Generally, the municipality that is taxing the real estate and the homeowner's insurance company send the bills for the property directly to the mortgage lender that holds the escrow account. When the assignment is filed in the local recorder's office, a copy is sent to the taxing municipality with the new lender's address for the tax bills. The new lender will also contact the insurance company directly to ensure the payments for the premium are not interrupted.
When someone receives a notice of assignment from a new lender, it is advisable to call the original mortgage lender and make sure the loan has been assigned. One form of identity theft is through an assignment of mortgage. There have been some cases where a borrower received what appeared to be an assignment of mortgage from a legitimate but unfamiliar company, and the mortgage payments made to this new "lender" actually went to an individual or group committing fraud.
About the Author
Anna Assad began writing professionally in 1999 and has published several legal articles for various websites. She has an extensive real estate and criminal legal background. She also tutored in English for nearly eight years, attended Buffalo State College for paralegal studies and accounting, and minored in English literature, receiving a Bachelor of Arts.
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