The Difference Between Promissory Note and Mortgage
Regardless of which mortgage Foreclosures Process is used in your state, (Judicial v. Non-Judicial) it’s essential to understand the difference between promissory note and mortgage – the two most important documents involved in the mortgage foreclosure process. The lender must have original “wet ink” copies of both documents to proceed with a Foreclosure Lawsuit, as well as originals of any subsequent assignments of your loan papers which is why these documents are so important.
The promissory note is the actual loan agreement itself and contains the essential terms of the transaction including the total amount you owe, the interest rate and how its calculated as well as the amount and number of monthly payments.
The mortgage, also referred to as a deed of trust in some states, is simply a security agreement which protects the lender as you literally pledge your property to the lender as security for the actual loan which is contained in the promissory note. This “security” for the lender must then be recorded in the county where the property is located to be a valid lien on your property and places the lender at the top of the list of creditors for your home.
Many of the issues you’ve read about in the paper or seen on television involving illegal or improper documentation by the lenders involve the failure to keep originals of both the note and mortgage or to properly record the transfer of the note and mortgage as required by state law. By recording most of the transfers under the MERS system (Mortgage Electronic Registration System) rather than the legally required county records, many of the transfers were never valid as confirmed by several recent court decisions denouncing the MERS system.
Learn more about possible defenses related to forged assignments and the bank’s failure to provide the original loan documents in our Foreclosure Defenses section.