A mortgage assignment, also referred to as an “assignment of mortgage”, occurs when the lender of the loan transfers their loan obligations to a third party. The lender will usually assign a mortgage by selling it to a new bank or lender. If this happens, the borrower will owe any previous obligations to the new lender.
After the transfer, the newer lender essentially “stands in the shoes” of the old lender and assumes the rights and duties associated with the mortgage agreement. Sometimes borrowers can assign their mortgage rights to a third party as well. However, this is not as common.
Any mortgage assignments must be recorded with the county recorder’s office. This is the department that stores and maintains records of property titles and transactions affecting deeds and titles. Generally, a title search at a local recorder’s office is supposed yield information as to whether there has been an assignment of mortgage rights.
Any recordings of an assignment can affect subsequent legal proceedings, such as a foreclosure proceeding or a judicial lien hearing. As such, it is important to record assignments so the chain of title is clear.
To carry out a mortgage assignment, the parties will need to execute a document that includes all the information necessary to complete the transfer. Assignment documents are generally required to contain the following information:
- The name of the assignor (current lender of the mortgage);
- The name of the assignee (the new lender taking over the mortgage);
- The name(s) of the borrowers;
- The date of the mortgage;
- The mortgage balance amount;
- The original mortgage record information; and
- The property's legal description.
The assignment of mortgage to the new entity must also be recorded in the same government office that handles the county records for that property. If the assignment is not properly recorded by the new lender, then they would not have the ownership right to foreclose.
However, 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 amounts. Generally, when a mortgage is transferred or assigned to a third party, the promissory note will also be signed over. As such, it is important to be aware of the role both mortgages and promissory notes play in property transactions:
- 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 borrower's promise to repay the loan debt. The owner of the promissory note generally has the legal right to collect the debt.
Mortgage assignments carry both benefits and drawbacks. One major benefit is:
- Mortgage assignment may allow a property that’s been on the market for a while to be sold. In many cases, mortgage assignments may allow buyers to purchase a house or property without having to contact a bank or lending institution for a loan. This is because they can have the previous party’s mortgage duties assigned to them. Most banks will understand the need for mortgage assignments and may even offer special packages for the transfer process.
One major drawback of assigning a mortgage is:
- When the assignment is not put into writing or recorded with the county, this can create confusion as to which parties are responsible for mortgage payments or for back debt. Also, non-payment of the monthly amounts owed can create various legal issues, especially where the original lender was already in debt when they assigned the mortgage.
When banks buy or sell mortgages from other banks and execute an assignment, 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 in this situation occurs when the bank is foreclosing on the property. The homeowner may be able to use the "produce the note" defense.
With this defense the homeowner can demand the foreclosing bank to produce the original promissory note. This can help prove that they are the true owner of the mortgage debt and have the legal right to foreclose.
As noted above, the promissory note is what gives an entity the right to collect debt. There are times when the new bank does not do the proper paperwork to prove that they own the note and the mortgage, which would help make this defense successful.
Like any mortgage contract, assignments generally require the assistance of an attorney because they can be complicated. You may wish to work with a real estate attorney in your area if you need assistance with a mortgage assignment or other legal issues. This can include asserting a "produce the note" defense during a foreclosure proceeding after there has been an assignment.
Additionally, an attorney can help you conduct a title search to determine if there are any outstanding assignments or debts associated with a property when you are purchasing property.