Need money now and have decided to sell your mortgage note? Estate planning for transfer of assets? Borrower delinquent and need to foreclose? These are some reasons you need to keep the Original Mortgage Note stored safely. You need the document as proof of borrower obligation and your right to receive payments.
INTRODUCTION
Safeguarding important documents is essential, and the original mortgage note is one of the most important documents in any seller-financed transaction. A mortgage note is a promissory note, or IOU, signed by the property buyer as a legally binding promise to repay the loan. It serves as proof of your right to receive payment and the borrower’s obligation to repay the debt according to the agreed-upon terms.
Without the original mortgage note, it may be difficult to prove the terms and conditions of the loan or enforce the borrower’s obligations. Maintaining possession of the original note is especially important if you ever need to sell the note or initiate foreclosure proceedings.
IMPORTANCE OF SAFE STORAGE
When you close on a seller-financed property or purchase an existing mortgage note, you receive numerous closing documents and supporting records. Closing is the ideal time to organize these documents and place them in a secure location, especially the original mortgage note.
Failing to safeguard the original note can have serious consequences. Unlike deeds, mortgage notes are generally not recorded with the county, so there is often no official copy available. If the original note is lost, a note investor may require the borrower (also known as the maker) to sign a replacement note before purchasing it. This means contacting the person who owes you money and asking them to execute a new document, which may not always be possible. In addition, the absence of the original note can complicate foreclosure proceedings if the borrower defaults on the loan.
A promissory note is similar to a check in that the original document is typically required to collect payment and establish ownership. It is also comparable to a vehicle title, which proves ownership and is signed over to a new owner upon transfer. If you decide to sell and assign the payments to a note buyer, the investor will require the original mortgage note at closing. The note is then endorsed to the investor, much like endorsing a check.
In some cases, the endorsement is made on a separate document called an allonge, which is a permanent rider attached to the original note. The endorsement enables the investor to prove they are a holder in due course, with the same rights of repayment as the original note holder.
Proper document storage is essential for effective note management and can significantly simplify a future note sale. In addition to storing documents where they can be easily located, they should also be protected from fire, water, and other potential damage. A bank safe deposit box or a fireproof and waterproof home safe are both excellent options. Some note holders choose to have the original documents retained by their attorney or a third-party loan servicing company for safekeeping.
Whatever storage method you choose, make sure the original mortgage note remains secure and accessible. Keeping the original note safe is essential for protecting your investment and preserving your ability to sell the note or enforce your legal rights if necessary.
SUMMARY
The best practice is to select a secure storage location and place the original mortgage note and all related closing documents there immediately after closing. Prompt storage reduces the risk of loss and makes future transactions much easier by ensuring your documentation is organized and readily available.
Remember, the original note is one of your most valuable assets. The note is essential to preserving the value and enforceability of your investment. It is as important as the property itself! Keep it safe and secure!
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MEETING
Why not set up a meeting with a Peak Notes specialist to discuss safe storage of your documents and steps to take for a lost note! Meetings are brief, cost nothing and can give you more insight into how you can maximize your investment potential!
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