A promissory note is a document between the lender and the borrower in which the borrower agrees to repay the lender, it is a separate contract from the mortgage. A mortgage is a legal document that links or secures real estate to the obligation to return the money. The promissory note, a contract separate from the mortgage, is the document that creates the loan obligation. This document contains the borrower's promise to repay the borrowed amount.
If you sign a promissory note, you will be personally responsible for repaying the loan. When a loan changes hands, the promissory note is endorsed (passed on) to the new owner of the loan. In some cases, the note is endorsed blank, making it a bearer instrument under Article 3 of the Uniform Commercial Code. Whoever holds the note has the legal authority to execute it and is entitled to execute it.
For example, let's say you're not eligible for a mortgage loan with a good interest rate because your credit ratings are terrible. However, your spouse has excellent credit and easily qualifies for a loan. The lender agrees to lend to your spouse and does not include you as a borrower in the promissory note. But because both are on the deed to the house, the lender requires both of you to sign the mortgage.
People tend to use the terms “deed” and “mortgage,” and they use them interchangeably when talking about owning a property. But what really is the difference? Well, there is actually a clear difference between a deed and a mortgage, and in fact, there is an additional document that is often not mentioned, but which is the most important thing. Therefore, as a general rule, if someone is in the deed, they must be in the mortgage. But just because they're on the mortgage doesn't mean they're on the note.
For example, many times one spouse may have bad credit, so it's not in the promissory note (lenders sometimes say “they're not on the loan), but both spouses are in the Deed, so both spouses have to be in the mortgage. It's important to recognize the difference between a deed, a promissory note and a mortgage, because they definitely have different legal implications. A promissory note and mortgage are documents that are usually part of a larger package of loan documents. Borrowers foreclose both a promissory note and a mortgage to secure the lender's interest in a loan.
While promissory notes and mortgages are fundamental to a loan package, each has a different purpose. It contains a description of the mortgage note and all the terms of the agreement between the borrower and the lender, and reflects all the terms of the mortgage. The mortgage also contains the legal description of the property to be attached to that particular property. Read on to learn more about what a mortgage note is and how your payment plan affects who owns it.
Depending on the client's needs and the desired outcome, it anticipates covering different angles that would be legally overlooked and, as a result, is able to help prevent unforeseen business ramifications. While the promissory note contains your promise to repay the loan, the mortgage describes what happens if you don't keep that promise. Real estate investors want people to pay their mortgages in the allotted time because they produce the highest return on their investment. Because both are part of the real estate buying process, it's often easy to confuse a mortgage note with a mortgage, also known as a mortgage deed.
A mortgage is a loan secured by a property that is used as collateral, which the lender can seize if the borrower fails to repay the loan. Again, while the promissory note contains your promise to repay the loan, the mortgage describes what happens if you don't keep that promise. Mortgages allow homeowners to make incremental payments until they have paid off their loans and own their homes. In this case, real estate investors will continue to own the mortgage note until the borrower pays his mortgage.
With a mortgage, you give the lender a way to get your money back if they don't keep their promise to make those payments through foreclosure. Because lending institutions sell mortgage notes, real estate investors technically own a property. Because the mortgage note establishes the amount of the debt, the interest rate, and obliges the borrower personally to repay it, the borrower signs the mortgage note. Mortgage contains information about loan amount, loan term, default provisions, and other important terms.