How do states treat a note without a mortgage?

😀 Real Property • Security Interests in Real Estate PROP#208

Legal Definition

A note can be transferred without the mortgage, but the mortgage will automatically follow the note unless there is an express reservation of rights.

Plain English Explanation

When you "get a mortgage," you don't deal with a single document. Mortgages involve two documents. The obvious one is the mortgage document, but people often forget there is also a promissory note (referred to simply as the "note") that contains all the important details regarding repayment. In other words, the "note" contains information like the name of the borrowing, the address of the property, the interest rate, payment details, amount of loan, and term of the loan. Additionally, the note is not recorded. In contrast, the "mortgage" contains information enabling its holder to take possession of the property if the note is not paid. It holds the security interest and is recorded.

Since parties are allowed to transfer their interests in mortgages, states have to deal with what to do when these two important documents get separated. In other words, what happens when a mortgage and a note are attempted to be separated.

States allow notes to be transferred without the mortgage, but the mortgage will automatically follow the note as long as it is properly transferred (discussed in later cards), or if the party expressly reserves the right to the mortgage, which is rare and doesn't make much sense to do.

Related Concepts

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