The Mortgage and The Note
These two documents formulate the essence of the home purchase or refinance. The vast number of related documents provide essential and legal information. However, the Note and the Mortgage are really the “action” documents. In their most basic functionality: the note specifies the terms of the loan, the mortgage provides collateral against a default of the Note.
Curiously, the Note typically begins with “In return for a loan that I have received, I promise to pay $XXX,XXX.XX”, but rarely is the Note notarized. It is often initialed on each page by the borrower(s) that are signing the final page. There should be an agreement with the 1003, the Loan Application as to who is technically a borrower. Non-obligors who may be “on title” never sign the note. As the definitive definition of the loan; interest rate and payment terms are generally the second and third items on the first page. These are the items of greatest interest.
Also essential, but rarely initially reviewed, is the Right to Prepay; and what will happen if the borrower fails to pay according to the terms of the Note. Typically, if more than one person signs the Note, each bears the full responsibility for payment. The Note is a negotiable instrument, similar to cash or a bond. They are frequently sold by the initial lender.
Almost all variations of the note include the words “Sign Original Only” on the signature page. As a negotiable instrument is being created, multiple copies of the Note for the same obligation could lead to fraud, confusion, and the borrower(s) being asked to pay each Note! When asked to execute multiple copies of the same Note; shrewd borrowers are careful to add wording to the effect that the duplicate(s) are “file copy” and “not negotiable” next to their signature(s).
The Mortgage, often referred to as the Deed Of Trust, is generally of much greater length compared to the Note. A key provision of the Note grants the Mortgage enforceability. The Note references the related Mortgage: “In addition to the protections given to the Note Holder under this Note, a Mortgage, Deed of Trust … dated the same date as this Note … protects the Note Holder if I do not keep the promises made in this Note”.
Think of the Mortgage as the “enforcement arm” of the Note. The Mortgage contains, in about fifteen pages; the procedures to, typically; take back the property. For notaries the Mortgage often contains a “built in” problem. On the first page of the Mortgage the borrower is “supposed” to be named. However, in lieu of their legal name the “vesting” name often appears. This is not a problem on the first page. But, it does get to be a problem on the last page. For it is there that the computer often uses the “vesting” name in the notary section.
For technical reasons, on the Mortgage vesting often includes “status” terminology such as “husband and wife” or “a single woman” or “a married man” – but **ONLY** the name is permitted in the notary section. Thus, “before me appeared John B Doe a single man” is not permitted per NY State notary laws. I am required to redact (thin line through & my initials) the “a single man” part from the pre-entered value following “before me personally appeared”. Care should also be taken to have John B Doe initial JBD not just JD if his middle initial is on the signature line of the Mortgage. I promise to pay, and, what if I don’t; are the heart of the deal.
Most fail to note (no pun) that there is language in the NOTE that incorporates the Mortgage as “part of the note”
A little mentioned aspect in the “fine print” but O so important.
You might also like:
Ken’s comprehensive guide to Deeds — Good Deed Bad Deed
The Deed of Trust