DO YOU KNOW HOW MUCH YOU REALLY OWE ON YOUR MORTGAGE LOAN?

This is a question that anyone who has a mortgage should be asking, notwithstanding what the “bank” or “loan servicing company” claims that you owe on your monthly statement or, if you are in foreclosure, what is being claimed as owed. The truth may surprise you.

A “mortgage loan” actually has two components: the Promissory Note (stating the amount borrowed and ultimately owed, with interest), and the Mortgage instrument which gives the lender” an interest in the property as security for repayment of the loan in the event that the borrower defaults. The Note itself is not the basis of any right to foreclose on the property. It is only a document evidencing a promise to pay. It is the mortgage document which gives rise to a fight to foreclose as this is the document which places the encumbrance on the property to secure repayment of the amount of money borrowed. Thus, the party seeking to foreclose must be in possession of both documents: the Promissory Note which is claimed to be in default, and the mortgage document which authorizes the remedy of foreclosure on the property. The presumption is that the party seeking to foreclose has a right to do so as (a) there is an amount owed which has not been paid; (b) the borrower is in default, and thus (c) foreclosure is an available remedy. Of course, this entire process presumes that the amount claimed to be owed on the Promissory Note is actually owed by the borrower.

In connection with the reselling, assignment, aggregation, and bundling of mortgage documents for purposes of creating CMOs (Collateralized Mortgage Obligations, a/k/a “mortgage-backed securities”) and the reselling and assignment of promissory notes to loan servicing companies, the two documents have, in many instances, become separated, with the mortgage winding up in a bundle with hundreds and perhaps thousands of other mortgages as part of the “backing” of a mortgage-backed security. The purchasers of such securities have become the true owners of the mortgages although, with the system that was used by the investment bankers, one investor could be a partial owner of literally thousands of mortgages without even knowing who the mortgagees are.

The Promissory Notes have likewise been assigned or sold off to other parties such as loan servicing companies or investors, sometimes with the investors permitting the original “lender” or the loan servicing company to retain the right to collect payments from the borrower.

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