Do You Know the Difference Between a Note and a Mortgage?
May 26th, 2009 Categories: Real Estate News
Real estate is filled with terms that are often used 1) interchangeably and/or 2) erroneously. The terms loan, mortgage, deed of trust and note are among those terms frequently used and misused. Our thanks to Mid-Atlantic Settlement Services for this easy to understand tutorial on the true distinction between a note and a mortgage.
Note
A note or promissory note is a contract whereby a party makes a promise to pay a sum of money to another party under specific terms. In real estate, the party is typically a borrower who agrees to make monthly payments of principal and interest over 20 or 30 years to a lender.
“The note has virtually nothing to do with the property itself and can technically exist without any collateral at all. If the borrower doesn’t pay, the lender can sue ‘under the note’ and obtain remedies for breaching that contract.”
Mortgage or Deed of Trust
For the purpose of this explanation we are going to use mortgage and deed of trust interchangeably. A mortgage is a transfer of an interest in property. Mortgages are tied to the debt created by a note, but a mortgage in and of itself is NOT a promise to pay the debt.
In fact, it is not a promise to pay anything. “Instead, it contains ‘granting’ language – like a deed – which gives the lender the right to take the property if the borrower goes into default and doesn’t pay under the terms of the note.” (And if you really want to know the difference between a mortgage and a deed of trust, click here.)
Key Differences
- A note is signed by the people who agree to pay the debt. A mortgage is signed by those who own the property being mortgaged. In residential real estate, the signers of the note and the mortgage are typically the same. A commercial transaction more often involves a corporate entity holding the mortgage, while principals sign the note.
- A mortgage needs to be recorded in the county or town recording office, the note does not. Instead, the note goes directly to the lender (and may then be sold to another lender.)
Questions? Want to sign a note and a mortgage for property in Northern Virginia? Give me a call at 703.927.4554 and let’s talk.
Michael
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I am genuinely impressed with the overall message of your blog. It is obvious that you know you topic and you are passionate about it. I wish I possessed your ability to write. I look forward to more updates and will be returning.
What if there are two people that have signed the mortgage, but only one of their names is listed and signed the note? Are both parties liable during forclosure procedings?
Stephanie – Since the note is the actual debt tool then the person associated with that bears all the responsibility. For further clarification I would contact the settlement attorney who handled your transaction.
MB
As basic as the post is, I think it is great. There are a lot of terms and acronyms that are thrown around the Real Estate industry, as well as others, that many people that have been in the field a long time still misuse. Thanks…
Jim -
Thank you. This is absolutely one of our most read posts. Not a day goes by that someone isn’t on looking for information. You are right, it is basic but it gets the job done. Hope you’ll stop by again.
Michael
The ‘unsigned’ copy of the docs I signed at closing have only my name on the Mortgage and the Note after the section (B) Borrower, MY NAME, A Married Woman and Borrower(s) MY NAME, A Married Woman, respectively.
However, the Mortgage filed at the court house has (B) Borrower, MY NAME, A Married Woman AND HUSBAND NAME, HER HUSBAND, and has a Limited Power of Attorney (LPA) signature on the last page – which I think is also forged. This happened on the 2nd mortgage which occurred at the same closing.
I did sign the page for ‘Borrower’s Spouses(s)’ which ‘…waves his rights…but joins in the Security Instrument…’ – which was not filed with the Mortgage.
I know I would have objected, loudly, to signing as my then husband being a Borrower on the Mortgage, no matter what. I did NOT sign his name on the last page either where they typed in his name and there is a signature too.
I do not have a copy of either of these pages where they typed in his name in the copy of the unsigned papers I requested from the closing company.
Also, when I refinanced the 2nd, the Lender did not complete the new Mortgage in the same manner as above. Though I was still married and I again obtained a LPA from my then husband, the Mortgage did not have his name or signature anywhere on the mortgage. BUT, they did file my LPA and the form waiving rights which I signed as LPA for him.
Do you think this is a case of fraud?
Do you think this Mortgage is legal?
If this Mortgage has 2 borrowers then there should be 2 borrowers on the Note, correct?
thank you…
Laws very from state to state and to get the most accurate answer you really need to contact a real estate attorney in your area.
Michael
Michael,
The property and contract are in Florida.
I was hoping from some comments at this site. The 3 attorney’s I spoke with had no comment. But, they would help me with debt consolidation/mediation, or help me through foreclosure if I paid $3,200 or $3,100 plus $200 per month I stayed in the home.
Just looking for some new thoughts from a different angle…
What happens if the Lender can not produce the note?
If my name is on the security instrument am I liable for the loan?
Melinda –
I would consult a real estate lawyer for the most accurate answer to this question. There may be local issues involved.
Michael,
I am currently trying to refinance my property located in NYC. The original lender was a standin for ABN, which was subsequently taken over by Citi. To save on the mortgage recording tax I requested the current lender to provide an assignment under CEMA. I was informed by the lender that at the time the stand in lender never assigned the mortgage to ABN so it will not be able to provide me with an assignment. The mortgage was recorded in the name of the original stand in lender who went out of business in 2007. The current lender (note holder claims that the note was indorsed to them). How do I get the mortgage lien removed? How can I confirm that the current lender is in fact the true note holder. Should I ask to make any future payments in escrow until note holder is verified.
Thanks
Tarak
Tarak – Please consult a real estate attorney in your area for the most pertinent and reliable information. Laws are dramatically different state to state and it would be unethical for me, as a agent licensed in Virginia, to give you information about a transaction in New York.
Michael
Hello,
My brother and I have a home in both our names. His name is on a note. We live in NY. If he has problems payingt he note will that be detrimental to me at all?
Thanks,
Grant
Grant –
Your best bet is to consult a lawyer in New York and let him respond to the statutes in that state.
Michael
I am trying to get some answers to a few questions. When I bought my house I was the only one listed on the loan (mortgage note). The Mortgage (security instrument) has both me and my husband. The deed has only my name, I checked today at my local probate office and she looked it up in the books. My question is since my husband’s SSN is not linked with the mortgage note can he be held liable if the mortgage goes into default? The mortgage company reports to the credit bureau on me but there is nothing on my husband’s at all. The initial loan application also has under “Name(s) title will be held under” it has both me and my husband as husband and wife and then beside it says “joint tenants”. What exactly does that mean?
Thanks,
Carol
Carol -
I would love to help you but I am NOT an attorney and cannot offer legal advice of any kind. Your best bet is to consult a settlement attorney and get information that is specific to your location and situation.
Best,
Michael
I have a concern; what is the difference between a hard money lender and a note buyer?
Let’s assume that I want to purchase an investment property for which I need financing. Is it the same thing if I ask for money to the hard money lender as if I tell the note buyer that I have a note for him, and I purchase a property and at the closing table pay with his money?
I guess I am confused of the role of a hard money lender and a note buyer. Can you help me clarify please?
Quick Question but complicated:
My husband and I purchased a home for my daughter who is now 25; she is the only one living in the home and pays all the bills and taxes, etc. and has for the past 5 years. The interest rate is 6.25% because it shows as a secondary home of ours; we have been trying to get a refinance at a lower rate with difficulty because although the mortgage is in all 3 of our names, her name is not on the note. It is considered a secondary home of ours even though it is not. Also, the home has decreased in value so approx. $20,000 more is owed on it than it is worth – is there any way to get her interest rate reduced because she is the primary resident and owner basically. Thank you for your help. We have applied to most everything and given all of our private information out in order to try to help her but have not gotten anywhere.
I’m not one to make comments on articles very often, but this information really spoke to me. It’s interesting and invaluable content presented in a very unique way. Thank you.
Is a Adjustable Rate Note valid if the only signature any where on the document is that of the “borrower’s?
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If you are on the mortgage and the deed but not on the note and the property is foreclose on, what is your liability? Will it be on your credit report? thanks