05.21.07
Mortgage Closers, are you explaining those terms?
I know it’s not a sexy topic, mortgages. But everyday, I see mortgages with almost impossible terms. Fifty years -?, “bad credit okay,” “adjustable rate, “negative am,” “low initial rate,” and WE all know what that means… But do the borrowers on these sub-prime mortgages, aka loser loans, (and I mean loser in more ways than one) know what they are getting into? I believe Closers have responsibility to cover the mortgage note and mortgage deed or deed of trust in detail so that the borrower will get the picture.
I once closed a first mortgage loan at 23%. Yes, 23%. In the early eighties, a gentleman needed to refinance a land contract, or lose his house. With bad credit, he went to the local “Credit and Thrift Company.”
He had no choice, and I had no choice but to explain the terms to him, as a good closer does. It was a terrible closing. He even pulled my phone off the desk and threw it at me. He wanted to kill the messenger. I did what was required and explained it all in a professional manner, but I sure felt sorry for him. He was doomed to lose that house.
That was an isolated insident for me, Thank heaven! But now, I am not so sure it doesn’t happen to you all every day. The news is bad. But I hope you have the integrity to completetly and professionally explain to the consumer What they are signing.
Edward said,
May 19, 2007 at 1:20 pm
Jeanne: Question concerning Note vs Mortgage: Sometimes under residential financing only one spouse (the husband in this case) is directed by the lender to sign the note, possibly due to the wife’s credit issues or other facts. However, in this case both the husband and wife are in title. A standard residential mortgage through its pre-printed language usually anticipates “borrowers” and “mortgagors” as being one and the same and usually states “have signed a note of even date” .This ofcourse ,is not technically true since only one spouse signed the note.Other examples such as mom and dad allowing their house to be used as collateral for their son’s note ,etc. reveal many situations where not all the owners of a property sign the note or guaranty to the bank , yet the standard mortgage document does not recognize this situation. Could the lender be exposed to not being able to trigger a foreclosure (at least against the interests of the non-signing note/owners) under this type of scenario ? Wouldn’t the lender need a Guarantor’s Mortgage that specifically recites the note and who signed it as the purpose of the Mortgage? Would title insurance protect the insured lender, who is attempting to foreclose ,against an attack from a creditor( or even a non note signing owner) that states the required connection (nexus) between the note and mortgage is not in writing and therefore a note default cannot trigger a foreclosure against non note-signing owners? Does an escrow person need to point this out to the lender at closing or is it soley the lender’s responsibility to prepare its documents correctly? Is it our job to only make sure that the insured mortgage is correct ? Thanks, Edward
Jeanne said,
May 20, 2007 at 7:45 pm
Edward, Good Question!
My understanding is that the Note is the Promise to Repay the loan, while the Mortgage subordinates one’s interest to the Lender, so that if the borrower defaults under the terms of the mortgage, the Lender will have security and can take the real estate.
The spouse is often required to sign a mortgage, because in many states, the spouse or common-law spouse receive an automatic marital interest in the homestead (called courtesy or dower) that a lender cannot foreclose unless the spouse consents. Because one is not able to determine if the property is legally homestead without a Court Order Declaring it to be Homestead, title companies ASSUME all property is homestead and require the spouse to sign so that it can’t be a title or foreclosure issue. (Homestead for tax purposes does not count as legal homestead.)
Another issue in having spouses sign, is the Purchase Money Mortgage (PMM.)( I believe the PMM affects something like 17 states??) In a PMM state, the spouse often will NOT be required to sign, because of the statutory laws behind PMM’s, which guaranty they can be foreclosed if legitimately labeled a PMM.
I’m not sure what State you are in, but in all instances I am aware of, the lender only uses the note as additional collateral, to go after the signor of the note in the event that there is a foreclosure where the property is sold for LESS than the remaining balance. Unfortunately, that is not all that uncommon today, because of the 125% mortgages, Negative Am loans, and exotic loans that are out there. In the case where a foreclosure did not cover the loan balance, the Lender could go after a Deficiency Judgment, and Garnish Wages, take personal property, etc. to be reimbursed for the full amount of the loan.
Hope this answers your question…
Edward said,
May 20, 2007 at 10:31 pm
Jeanne: Thankyou for your good comments. For your information I am from Ohio. However, the real question is : Can a lender foreclose on ALL the fractional interests owners of a certain property (even if all the owners and spouses sign the mortgage) if NOT ALL the fractional interests owners signed the note and no specific reference as to the actual fractional owners who did sign the note is made within the mortgage document? In other words if Robert Smith and Mary Smith owned the property as tenants in common and they both signed the mortgage it would appear that this is a good lien, however, if only Robert Smith signed the note (and the mortgage does not specifically state that “this mortgage is executed to secure a note only signed by Robert Smith” how can the lender foreclose on Mary Smith’s 1/2 interest with no connection of her interest to the defaulting note ? As you probably know a standard mortgage usually states something like “Mortgagors ” (Robert and Mary Smith) also being the “Borrowers ” who executed a note of even date” (which in this case is technically not true ) but is this enough to prevent Mary’s 1/2 interest from being foreclosed upon? If not, what is the trigger document of default that allows the lender to go after her 1/2 interest? Where does title insurance come in?
Jeanne said,
May 21, 2007 at 1:57 pm
Edward, In my opinion (I am a seasoned title insurance veteran and based on the Underwriters I have worked for) so long as ALL of the owners and spouses sign the mortgage, their interests are subordinated, and the Lender should have no problem foreclosing the entire real estate.
The Mortgage Note does not relate to the foreclosure, except by reference. It is simply extra assurance for the debt, allowing the lender to obtain additional security if needed.
The problem would come in where a title insurer MISSED the interest of a spouse, so that an interest was not subordinated by everyone signing on the mortgage. In that case, the title company would have a serious problem. In your scenario above, however, the foreclosure would be no problem. But if there was a deficiency and the house was worth less than the balance on the mortgage, the Lender could ONLY go after Robert for the shortage.
Edward said,
May 21, 2007 at 5:22 pm
Hi Jeanne: So are you saying that if Mom and Dad Smith signed a mortage that was given soley to secure a note only signed by the son (and the mortgage incorrectly stated that the mortgage secures a note signed by the “mortgagors” )that upon default of the note (signed only by the son ) the bank can initiate a foreclosure on mom and dads’s property? How does the bank jump to the mortgage without a specific (and accurate) reference contained therein regarding the son’s note? It would seem to me that you need a proper nexus between the two documents. The mortgage note does relate to the foreclosure since it is the non-payment of the note that triggers the foreclosure. Do you agree? Thanks, Edward
Jeanne said,
May 23, 2007 at 1:37 pm
Sorry, I don’t think I understand the question. First, Who is/are the fee owner/s? Who is guaranteeing whose loan? Are we talking about more than one piece of property?
As I see it, Mom and Dad would only need to sign the mortgage if they were Owners in the property. Mom and Dad would only need to sign the note as addional Guarantors for the money owed. The two documents do not have to correlate f for signatures.
Of course, unless the lender has a loan it cannot go after Mom and Dad’s property without a mortgage on Mom and Dad’s property, unless they get a judgment, and are able to attach the real estate, and that would depend on state law. Is this as clear as mud???
Edward said,
May 23, 2007 at 10:33 pm
Jeanne: Thanks for staying with this and trying to help. Here is one scenairo: Mom and Dad own in fee simple (1/2 each) a house. Son wants to borrow money from the bank but has no collateral of his own. Mom and Dad agree to allow their house to be used as collateral for son’s loan but do not want to be responsible to pay the debt and will not sign the note. If the bank allows only the son to sign the note and only Mom and Dad to sign the mortgage (and if the mortgage does not clearly state that the purpose of granting the mortgage is to “secure payment of the son’s note” then my argument is that a default of the son’s payment to the note could cause a delay or possibly not trigger a foreclosure at all (even though Mom and Dad allegedly agreed that their house can be foreclosed upon in case the son defaults under the note) because the mortgage does not properly connect itself to the note in writing. (For instance the parents attorney may argue that they did not understand what they were doing or a second creditor may argue that this first mortgage is faulty because of this disconnect.) I am trying to assit a local lender in advising them that they need a Guarantors Mortgage (in place of a standard Mortgage) that clearly states who’s signature on the note is being secured when the owners ,ALL THE OWNERS, of a property do not sign the note.
Jeanne said,
May 24, 2007 at 11:47 am
Edward, So, under your scenario, Mom and Dad are willing to risk losing their house for payment of the debt, i.e. by signing the mortgage. In doing so, the terms if the mortgage will rule. If the mortgage says it is (only) foreclosable under default of the terms of the note, I agree, there must be a note to trigger the foreclosure. Moral of the story, check the terms of the Mortgage!
Edward said,
May 24, 2007 at 10:49 pm
Jeanne: Thanks for your assistance!!