Mortgage Assignment - How Real Estate Investors Profit
Mortgage assignment is a common practice among lenders. A mortgage deed, also called a deed of trust or trustee's deed or deed of trustee, gives a lender a security interest in the property mortgaged in return for money received. Lenders and mortgagors of deeds of trust often sell mortgages to third parties, like other lenders. If a trustee is assigning beneficial interest under a deed of trust, it should be recorded in writing. Mortgage assignment is a document that indicates that such an assignment of contract has happened. Once an assignment is recorded, a new lender stands in the shoes of the original lender.
Although a lender is not required to inform a borrower prior to mortgage assignment, s/he must send a notification after a mortgage sale has taken place informing the borrower how to make mortgage payments in the future. The borrower can negotiate mortgage terms with the new lender and seek mortgage modification.
A mortgage deed refers to a deed accompanied by a mortgaged loan note. Every mortgage deed involves two steps: a promissory note and a mortgage. A note has details like amount owed, term of loan, etc. and is proof of existence of a mortgage. The mortgage is the means through which a borrower pledges or mortgages property as security for money received. The note and mortgage are two sides of the same coin and are inseparable. A mortgage follows the note and thus assignment of mortgage note results in assignment of a mortgage. In other words, a mortgage cannot be assigned without transferring the note. Therefore, assignment of note and mortgage happen simultaneously.
Mortgage assignments are beneficial to both home sellers as well as buyers. For home sellers it can be an easy way to sell a home that has been on the market a long time. The benefit for home buyers is that they can buy a house without going through the process of qualifying for a bank loan and making a large down payment. There are many real estate companies offering attractive assignment programs that benefit sellers and buyers alike. Using the benefits of such a home mortgage assignment program will help you sell your home quickly or buy a home without dealing with bank formalities.
Once a mortgage has been transferred, it means that obligation of loan has transferred. In order to validly assign a mortgage, a mortgage assignment document should have the following details:
- description of the real estate so that there is clarity about the property
- the name of the original party as well as the third party
- contact information
- the date when the mortgage assignment became valid
Assignment of mortgage should be recorded before the government authority that deals with property ownership, property taxes, etc. If you are a borrower and you receive a notice that your mortgage has been transferred to another lender, you should get in touch with your lender and confirm it. You should also secure details of the person to whom the mortgage was sold to.
If you are a new lender and do not have a valid mortgage assignment document, you will be disadvantaged if you have to move for foreclosure. In the event mortgage payments stop, you may want to move the local court for foreclosure and take ownership of the property mortgaged. If there was no legal document created when you assign a mortgage, you will have no right to file for foreclosure. Therefore, it is important to document when you assign a mortgage. Click here to view our sample mortgage assignment form, also referred to as an assignment of mortgage form or mortgage assignment letter.
One drawback of mortgage assignment is that it all depends on a third party. For many, getting mortgages assigned is a kind of real estate investing practice. The third party to whom the mortgage is assigned to is a real estate investor who reaps the benefits of one of the party's desperateness. The investor third party is only concerned about reaping mortgage assignment profit from the mortgage assignment investing deal s/he has entered into and has no regard for the financial well being of the parties involved.
Mortgage Assignment FAQs
What is mortgage assignment?
Mortgage assignment, also called assignment of trustee's deed or assignment of deed of trustee, is the process of selling an existing mortgage to a third party. The borrower gets notice to make mortgage payments after the date of assignment of the mortgage deed to the new mortgagee. A mortgage assignment form satisfies lawful conveyance of the mortgage. An assignment of mortgage form also signifies that an assignment of contract has occurred and mortgage has been transferred.
Who can assign a mortgage?
A mortgage holder or a borrower can assign the mortgage to a third party. A lender can also assign a mortgage to another lender. In some cases, a homeowner can engage in assignment of mortgage, but the lender must give permission.
What are my benefits if I engage in HUD mortgage assignment program?
Homeowners can avoid foreclosure and can refinance their mortgage with the help of a mortgage assignment program offered by the U.S. Department of Housing & Urban development (HUD). In a real estate investing business, mortgage assignment program helps a real estate investor to sell his/her home really quickly.
What are the drawbacks of mortgage assignments?
There are a few drawbacks to assignment of a mortgage that you should be aware of. In case the buyer defaults on payments, you might have trouble collecting. Another disadvantage is that mortgage assignment depends on a third party-the new buyer, who is only concerned about getting mortgage assignment profit from a mortgage assignment deal.
Can you explain the process of mortgage assignment?
It is always advisable to utilize the services of a professional realtor or investor in the mortgage assignment investing business. Once you assign such a firm the task of mortgage assignment by signing a sales contract, they will do all the paperwork necessary for a mortgage assignment program. You will be required to submit additional documents related to the mortgage in order to assign the mortgage. The mortgage will then be advertised. Once a buyer is located, your realtor will require you to sign remaining paperwork and will prepare closing documents.
Documents required for a mortgage assignment are:
- loan details including loan number, loan type and terms of loan
- an authorization to discharge Loan Information
- purchase contract and addendum to contract identifying conditions of mortgage assignment
- seller's disclosure document
- mortgage assignment letter
- document assigning insurance contract
- an acknowledgement document by seller
- mortgage modifications, if any
Can a Mortgage Holder with a Defectively-Executed Mortgage Assignment Succeed in a Foreclosure Case?April 27, 2017 | Larry R. Rothenberg, Esq.
It is common for the plaintiff in a foreclosure case to have acquired the note and mortgage from the original lender. Typically, the original note holder transfers its rights in the note by indorsing the original note or signing an allonge1 and then delivering the original note to the new note holder.
The original note holder also executes an assignment of the mortgage, which is then filed in the county records. When the new note holder files a foreclosure action, it alleges it is the holder of the note and mortgage, and attaches those documents as exhibits to the complaint.
Can a borrower defend a foreclosure by challenging the validity of the indorsement, or allonge, or the assignment of the mortgage? This issue was illuminated in an April 13, 2017 Ohio appeals court decision in Deutsche Bank Natl. Trust Co. v. Baxter.2
Ohio courts are required to scrutinize the plaintiff's documents to decide whether the plaintiff can enforce the note or mortgage, according to a 2012 Ohio Supreme Court decision.3 In the Baxter case, the plaintiff claimed to have acquired the note and mortgage from the original note holder, New Century Mortgage Corporation. As part of the evidence, the plaintiff presented the original note, which contained an indorsement in blank, i.e. signed on behalf of New Century without identifying the new holder. As the party in possession of the note, the plaintiff claimed it was entitled to enforce the note. The mortgage had been assigned to the plaintiff in 2009, on behalf of New Century under a power of attorney.
The borrower challenged both the assignment of the mortgage and the indorsement of the note, because New Century had filed bankruptcy in 2007. Under bankruptcy law, filing for bankruptcy revokes a power of attorney. The mortgage assignment had been executed in 2009, two years after the power of attorney had been revoked by the bankruptcy filing. The indorsement of the note was undated, and therefore it may or may not have been executed after the bankruptcy filing.
The court decided the issue of whether the indorsement of the note had been executed prior to or after New Century's bankruptcy filing was irrelevant, because at the time the plaintiff filed the foreclosure complaint, the plaintiff was in possession of the original note indorsed in blank. This proved the plaintiff was entitled to enforce the note.
The assignment of the mortgage, which was executed after New Century's bankruptcy filing, was probably defective due to being signed by an attorney-in-fact under a revoked power of attorney. Nevertheless, the court reiterated that under Ohio law, the mortgage "follows the note" it secures. The physical transfer of a note indorsed in blank is an equitable assignment of the mortgage, regardless of whether the mortgage is validly assigned. Because the plaintiff had the original note, the fact that the mortgage assignment was not executed by an authorized signer was irrelevant. (Please Note: The same should be true even if no assignment had been executed at all, although we recommend obtaining and recording a valid assignment of the mortgage, in addition to obtaining a valid transfer of the original note.)
The court in the Baxter case added a second roadblock to the mortgagor's attempted defense, by reiterating Ohio law that a mortgagor lacks standing to challenge a mortgage assignment if the mortgagor is not a party to, or a third-party beneficiary of, the assignment. Because of this, the claim that the mortgage was not properly assigned, was immaterial.
The plaintiff filed its foreclosure in 2009 and attached a copy of the note without any indorsement, as an exhibit. In that original case, the plaintiff was granted a judgment, but the judgment was subsequently declared void and the case was dismissed because the assignment of the mortgage was not signed by an authorized signer, and there was no indorsement of the note.
The plaintiff refiled the complaint, attaching the indorsed note as an exhibit. It took over seven years from the plaintiff’s original foreclosure filing date, to finally obtain this favorable Ohio appeals court decision.
Upon acquiring a loan, due diligence should always be performed to ensure the valid execution of documents transferring the note and mortgage. Although the plaintiff ultimately won in the Baxter case, the plaintiff could have avoided a seven-year litigation quest and substantial attorneys' fees by performing that due diligence.
For more information, please contact Larry R. Rothenberg, Esq. Mr. Rothenberg is an attorney with more than 35 years of legal experience who has been recognized by Martindale-Hubbell as a leader in his field, and has been selected in multiple editions of Ohio Super Lawyers. He is a shareholder in WWR’s Real Estate Default Group in Cleveland, Ohio.
1 A separate page attached to the note
2Deutsche Bank Natl. Trust Co. v. Baxter, 2017-Ohio-1364
3Fed. Home Loan Mtge. Corp. v. Schwartzwald, 134 Ohio St.3d 13, 2012-Ohio-5017, 979 N.E.2d 1214
4 ORC §1303.25 (UCC 3-205).