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?