A mortgage note”, commonly referred to as a “deed of trust note” or a “promissory note”, is the general loan contract provided to a would-be homebuyer by a lender – it is the piece of paper that made the loan official and legally effective.
Homeowners should treat their mortgage note the same way they treat their birth certificate, social security card, and any other critical pieces of documentation. Your mortgage note is an incredibly important document, and this article will explain why.
As noted above, the mortgage note is a contract between the buyer and their lender. This agreement sets forth several terms including:
Loan Terms (e.g., 5-year “ARM” or 30 years fixed rate);
Interest Rate;
Dates for Payment; and
Consequences for Failing to Meet Your Obligations Under the Note.
The mortgage note is also the legal device which allows the homebuyer to put their home up as collateral, or security, for the loan itself. Once a home is used as security for the loan, the lender gains the right to foreclose on your home to regain the full value of the contract if the borrower defaults on the agreement (fails to comply with the terms of the mortgage note).
What Is Owner Financing, and What Does it Have to Do with Mortgage Notes?
Mortgage notes are not restricted to loans from banks and other lending institutes. In fact, mortgage notes are frequently involved in sales where the homeowner finances the transaction. In a homeowner financing arrangement, the seller is both the seller and the lender. These arrangements are usually short in duration, a few years, and the buyer then seeks to refinance the loan through a bank or other traditional sources of home financing.
Are Mortgage Notes Transferrable Property?
A security interest is just like any other property interest (there are significant restrictions on transactions involving securities, but that is beyond the scope of this article) and can be freely transferred without the borrower’s permission. If you recall the Great Recession of 2008, this is what happened on an extreme level. Today, there are numerous restrictions on transferring mortgage notes, but it still happens regularly. The critical takeaway from the transfers however is that the original owner of the note has transferred their rights and duties (legally speaking, they have assigned their rights and delegated their duties), but your rights and obligations remain identical.
If you take nothing away from this article but this, we will consider it a win: your mortgage note is a critical document that must be kept safe like any other important document. It sets forth the terms of your loan agreement. While the rights under that agreement may be transferred, those transfers do not impact your obligations under the contract. At the Chernov Team, we know that whoever comes to the table most prepared leaves the table with the most – the Chernov Team always leaves the table with the most.