There is no shortage of paperwork involved in a foreclosure. I have found that some of my best educated, most informed clients do not understand all of the important documents involved in the purchase of a home and subsequent foreclosure. Here is a quick overview of these items.
When a home is purchased, the buyer signs a contract with his or her lender to borrow money to buy the home. This contract is called a promissory note. In it, the borrower promises to repay the lended money with interest over a period of time. An important feature of a promissory note is that it may–and probably will–be transferred to another person or entity. This person or entity is permitted to enforce this agreement just as the original lender could. Transfers of a promissory note are often made with endorsements, that assign the debt to another entity. These endorsements can be found on the note itself or another slip of paper, called an allonge.
Pursuant to the Supreme Judicial Court’s landmark Eaton v. Federal National Mortgage Association case, the foreclosing entity needs to be the holder of this note at the time of foreclosure. This, however, only applies to foreclosures occurring after June 22, 2012.
If you do not have a copy of your promissory note, you can obtain one by submitting a Qualified Written Request to your lender, requesting that they show you proof they are the lawful owner of your note. Someone who signs a promissory note is on the hook for repaying the borrowed money. However, a borrower can discharge (ex. “wipe out”) this debt in bankruptcy. Because of this fact, the lender will want additional protection for their investment, also known as security. This is the reason for a mortgage.
A mortgage is a security interest that allows a lender to repossess (“foreclosure”) the underlining property if the debt is not repaid. While it is common for homeowners to talk about paying their mortgage when making payments on their home, they are actually referring to the mortgage loan. A mortgage is merely the lender’s means of protecting its financial investment.
In Massachusetts, mortgages are almost always recorded in the local county’s Registry of Deeds. These can be found online at www.masslandrecords.com.
Just like your promissory note, your mortgage can–and almost certainty will–be assigned throughout the life of your loan. In another landmark decision, the Supreme Judicial Court in U.S. Bank v. Ibanez held that, at the time of foreclosure, the foreclosing entity must have record assignment of the mortgage. Anyone involved in one of these cases should therefore review their mortgage assignments carefully to see if this requirement has been complied with.
Mortgages are often assigned throughout the life of a loan. Like mortgages, these assignments are almost always recorded in the Registry of Deeds. In a typical mortgage assignment, the grantor (the person or entity giving the assignment) assigns the mortgage to the grantee (the person or entity receiving the assignment).
A deed is the document that passes property ownership to another person or entity. When a home is purchased, the seller deeds the property to the buyer through a quitclaim deed (the standard type of deed in Massachusetts). When a home is foreclosed, the foreclosing entity records a foreclosure deed that passes ownership of the property from the prior homeowner to the person or entity who purchased the property at the foreclosure sale (typically the entity who held the mortgage and conducted the foreclosure sale). Included in a typical foreclosure deed is an affidavit of sale, stating the steps taken to comply with Massachusetts foreclosure law, as well as a copy of the notice of sale used to advertise the foreclosure.