The fraudulent scheme came to light when both banks tried to foreclose on the same mortgaged property. 4 th DCA ) in which two promissory notes were held by two banks, the notes being secured by the same mortgage. On May 6 th, the Fourth District Court of Appeal handed down the decision in HSBC Bank USA, N.A., Case. In a recent decision by the Fourth District Court of Appeal, Judge Gross, laid out the legal analysis for such disputes, and how notes are perfected. When two notes are secured by one mortgage, it is necessary to figure out which bank “perfected” title to the mortgage in order to determine to whom the mortgaged property rightfully belongs, when assignments are not recorded purchasers and Associations can find themselves in a heap of trouble Each assignment is supposed to be recorded in the county land records, but recordation is not required. An “assignment” is the document that is the legal record of the transfer of the mortgage from one bank to another. Banks often sell and buy mortgages and deeds of trust from each other.
In this instance, both banks would seek to foreclosure on the property.įoreclosure is the legal process where real estate secured by a mortgage or deed of trust is sold to satisfy the underlying debt as evidenced by the promissory note. What happens when two promissory notes are held by two banks allegedly secured by the same mortgage?Īlthough this type of activity is fraud, issues would not become apparent until the payments to one or both of the two banks stopped coming in (the borrower defaulted on the loans). The result is two loans and two promises to pay, backed by one property, creating an unsecured mortgage – basically one of the banks does not have what they thought they had– collateral on their loan. Issues come up when there are two (or more) separate notes from different lending banks tied to one single mortgage. As such, mortgages must be recorded with the county land records to put all others on notice of the security interests tied to the property. In other words, although you may have actual possession of your home, the mortgage gives a legal security interest of the property to the bank in order to make sure someone does not run off with their money. The mortgage is the instrument which allows the bank to foreclose on your home if you default on the mortgage payments. On the other hand, the purpose of a mortgage is to provide security for the loan that is evidenced by the promissory note.
Tie two different notes tabledit full#
When the borrower (known as the mortgagor) pays the loan back, the note will be marked as paid in full and returned to the borrower. The lender holds the promissory note while the loan is outstanding.
Unlike a mortgage, the promissory note is not recorded in the county land records. The note includes the: (1) name of the borrower (2) property address (3) interest rate – fixed or variable (4) late charge amount (5) amount of the loan, and (6) the term of the loan – number of years. Homebuyers usually think of the mortgage as the contract they are signing with a lender to borrow money to purchase a house but it is actually the promissory note that contains the promise to repay the amount borrowed.Ī promissory note can be compared to an IOU that contains the promise to repay the loan, as well as the terms of repayment. When you are looking to take out a loan to purchase a home, you are required to sign numerous documents, including: (1) a promissory note and, (2) a mortgage (or deed of trust). What is the difference between a mortgage and a promissory note? If you are interested in reading previous newsletters, please visit select the icon for Newsletters, and then choose the area of law you are interested in. If you have any questions regarding this article or any other questions, you may contact Mr. Real Estate Law – What happens when two distinct notes are secured by the same mortgage?