Mortgages are “secured transactions.” Secured Transactions are, essentially, collateralized loans. In secured transactions, borrowers give lenders an interest in some property (collateral) that will cover the amount borrowed if the borrower defaults. When someone buys a car, for instance, the car can be repossessed by the lender if the borrower stops making payments. The car will, theoretically, cover the remaining amount of the loan. The collateral (the car) “secures” the transaction because it practically guarantees that the lender will get, at least, an amount equal to the value of the collateral in return for the loan.
When someone mortgages a home, the home serves as collateral for the amount of the loan. The note is the contract in which a borrower agrees to repay a loan. The mortgage is the contract that makes the real property collateral for the loan. The mortgage gives a lender the right to take the home if a borrower stops paying the debt, as agreed to in the note.
Foreclosure plaintiffs (banks or other lenders) must prove that they own both the note, and the mortgage. Plaintiffs that can’t prove that they own these two instruments will not win a foreclosure case. If the plaintiff is not the original party to the loan – which could happen if one bank or lender sells the loan obligation to another – then the plaintiff must show how it came to own the loan.
One would expect banks and lenders to keep documents as important as notes and mortgages safe and secure. Surprisingly, this is not always the case. During the housing boom, mortgages and notes changed hands so frequently and quickly that it was not uncommon for one or the other to get lost in the shuffle. Earlier this month, an attorney representing a homeowner in Queens won a foreclosure case because the bank couldn’t prove that it owned the mortgage and note.
Not all homeowners will be so lucky. But chain of title issues are definitely worth investigating. Foreclosure defendants should consult with experienced foreclosure attorneys in order to explore all options and defenses.
If you have questions about this or other legal issues, call The Law firm of Vaughn and Weber at 516-858-2620 today to schedule a free consultation. We are located in the heart of Long Island at 393 Jericho Turnpike, Suite 208, Mineola, NY 11501.