Mortgage Assignment Laws
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What Is an Assignment of Mortgage?
A mortgage assignment, or “assignment of mortgage”, is a type of agreement where a borrower transfers their loan obligations to a third party. The newer lender “stands in the shoes” of the old lender and assumes the rights and duties associated with the mortgage agreement. This is similar to the idea of contract assignments in other areas of law.
When a mortgage assignment occurs, the bank or lending institution will usually want to retain some of their rights even after the transfer, such as their right to foreclose on the home in the event of non-payment. The bank’s rights may need to be recorded in a separate document from the one that assigns the mortgage to the third party.
What Are the Requirements for an Assignment of Mortgage?
The requirements for an assignment of mortgage is usually a document which includes all the information necessary to transfer the original lender or borrower to a third party. Banks usually assign the mortgage to new bank by selling and buying mortgages to each other. Assignments are required to contain the following information:
- The name of the assignor (current owner of the mortgage)
- The name of the assignee (the new owner taking the mortgage)
- The names of the borrowers
- The date of the mortgage
- The mortgage balance amount
- The original mortgage record information
- The property's legal description
The assignment of mortgage to the new entity must also be recorded in the same government office who handles the county records for that property. If the assignment is not properly recorded by the new entity, then they would not have the ownership right to foreclose. 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.
Should Mortgage Assignments Be Recorded?
In order to prevent confusion or a “cloud” on the property title, it’s important that any mortgage assignments be recorded with the county recorder’s office. This is the place that stores and maintains records of property titles and transactions affecting deeds and titles.
Generally, a title search at the recorder’s office is supposed yield information as to whether there has been an assignment of mortgage rights. Any records of an assignment can affect subsequent legal proceedings, such as a foreclosure proceeding or a judicial lien hearing.
What Are Some Benefits and Drawbacks of Mortgage Assignments?
One of the main benefits of a mortgage assignment is that it may allow property that’s been on the market for a while to be sold. In many cases, mortgage assignments allow buyers to purchase a house without having to contact a bank or lending institution for a loan, since they can just have the previous party’s mortgage duties assigned to them.
Most banks understand the need for mortgage assignment and may even offer special packages for the transfer process.
On the other hand, one of the main drawbacks of mortgage assignments occurs where the assignment isn’t written down or recorded with the county. This can create confusion as to which parties are responsible for mortgage payments or for back debt payments. Also, non-payment of the monthly amounts owed can create issues, especially where the original lender was already in debt when they assigned the mortgage.
What Is the Difference between a Mortgage Assignments and a Transfer of the Note?
A loan transaction consists of two documents: a mortgage and a promissory note. There is a difference between a mortgage and a promissory note.
- 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 borrowers promise to repay the loan debt. The owner of the promissory note has the legal right to collect the debt.
When a mortgage is transferred or assigned to a third party, the mortgage is then recorded by the new bank or lender who has right to collect the debt. The promissory note will also be signed over by the borrower. Homebuyers usually think the mortgage is the contract that is enforceable to collect a debt, however the promissory note contains the promise to repay the amount.
What Are Some Defenses to Mortgage Assignments?
Sometimes banks will sell or buy mortgages from other banks and the mortgage will be assigned to a new bank. 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 when the bank is foreclosing on the property is the "produce the note" defense. In this defense the homeowner is demanding the foreclosing bank to produce the original promissory note to prove that they are the true owner of the mortgage debt and has the legal right to foreclose. There are times when the new bank does not do the proper paperwork to prove that they own the note and the mortgage.
Do I Need a Lawyer for Help with Mortgage Assignments?
Like any mortgage contract, assignments generally require the assistance of a lawyer. Since they involve several different parties, mortgage assignments can sometimes be complicated. You may wish to work with a real estate lawyer in your area if you need assistance with a mortgage assignment or other legal issues. Also, if you will be purchasing a home, a lawyer can help you conduct a title search to determine if there are any outstanding assignments or debts associated with the property.
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Strawbridge v. Bank of NY Mellon: Appeals Court Justice Peter Agnes Gives Judicial Blessing to MERS Assignment System, Rejects Other Foreclosure Challenges
The most recent foreclosure case heard by a Massachusetts appellate court should allow title underwriters and foreclosing lenders to sleep better at night. In Strawbridge v. Bank of NY Mellon, No. 16-P-1244, embedded below, Appeals Court Justice Peter Agnes upheld the MERS system of holding and assigning mortgages in Massachusetts as a “nominee.” Judge Agnes also ruled that the borrower lacked standing to raise defects in the pooling and servicing agreement by which the bank created a securitized mortgage trust, because she is not a party to that intra-lender agreement. This ruling should simultaneously benefit the housing market, while taking away a major weapon for foreclosure defense attorneys.
The case was brought by well-respected foreclosure defense attorney Glenn Russell, Esq. who represented the borrower, Sandra Strawbridge. Attorney Russell’s cases are typically on the cutting edge of foreclosure defense law, and thus, should always be read with interest.
Strawbridge challenged the foreclosure on the grounds that the Bank did not comply with Massachusetts foreclosure law after the SJC’s decision in Eaton v. FNMA which held that a foreclosing lender must establish it holds both the promissory note and the mortgage. (Title companies have issued comprehensive underwriting guidelines after the Eaton ruling). Strawbridge also claimed that MERS’s assignment of her mortgage to the Bank was void because the assignment occurred after a date established in the pooling service agreement (PSA) of the securitzed trust.
Countrywide-MERS Assignment System
In 2007, Strawbridge obtained a $370,000 mortgage from Countrywide Home Loans. The mortgage designated Mortgage Electronic Systems, Inc. (MERS) as the nominee for Countrywide. In 2009, Strawbridge defaulted on her note by failing to keep up with her mortgage payments. In February, 2010, MERS assigned Strawbridge’s mortgage to Bank of New York Mellon which held the mortgage as part of a securitized trust. A MERS “Assistant Secretary and Vice President” executed the assignment, which was notarized and recorded at the appropriate registry of deeds. Later, in March, 2015, a “Second Assistant Vice President” at the Bank’s loan servicer executed an “Affidavit Regarding Note Secured by Mortgage Being Foreclosed.” That affidavit states that the Bank is the holder of the note. In addition, in April, 2015, the Bank’s loan servicer executed a “Certificate Relative to Foreclosing Mortgagee’s Right to Foreclose Pursuant to 209 C.M.R. 18.21A(2)(c),” which certified that the Bank is the “holder of the Mortgage” and “the holder of the Note or is authorized agent of the Note holder with the specific authority to enforce payment and pursue foreclosure of the Mortgage on behalf of such Note holder.” Finally, in July, 2015, the Bank sent Strawbridge a notice of foreclosure sale, informing her that a foreclosure sale would take place in August. The borrower challenged the sale in the Superior Court which ruled against her.
On appeal, Judge Agnes ruled that “MERS’s nominee status does not preclude it from validly assigning the mortgage, or does it limit MERS’s power to exercise a right of [foreclosure] sale.” The Court also rejected the borrower’s argument that the Bank is required to provide a complete chain of assignments of the mortgage, opting instead to hold the Bank to a less onerous standard of merely producing a single assignment directly from MERS, the last holder of record. Lastly, the judge ruled that the borrower lacked standing to raise defects in the pooling and servicing agreement because she is not a party to that intra-lender agreement.
The impact of this decision is a reaffirmation that the MERS system of assigning mortgages remains legal and binding in Massachusetts. MERS mortgages account for the vast majority of conventional mortgage financing in Massachusetts. This ruling will also make it more difficult for distressed homeowners to challenge foreclosures, clearing the way for banks to sell REO property. I spoke to Attorney Russell about the case, and he indicated that he is considering taking an appeal up to the Supreme Judicial Court. So this may not be the last word on the matter.
Strawbridge v. Bank of NY Mellon by Richard Vetstein on ScribdRich
Tagged as: Glenn Russell attorney, Judge Peter Agnes, Massachusetts foreclosure defense attorney, Massachusetts foreclosure law