Key Information in Your Promissory Note and Mortgage to Protect You From Foreclosure

With real estate contracts typically going longer than 100 pages, it’s very rare for anyone buying a home to understand all of the documents they sign at closing. That’s intentional.

You are supposed to feel overwhelmed with the whole process to the point where you will just sign anything and everything. The Bank’s lawyers wrote the contract to protect the Bank, and that means they made things more complicated than they have to be – especially for you.

But there is good news: while the foreclosure process is designed to be easy for the Bank to collect, you can hire qualified lawyers to fight for you and level the playing field.

But before we get to that, we want to share some information about how the Foreclosure Process starts and what you need to know from the get-go.

The most important documents you should have an understanding of before the foreclosure process can begin are Promissory Note and the Mortgage (or Deed of Trust).

What is a Promissory Note?

It is common to get the Promissory Note confused with the Mortgage, but in reality they are two parts of the whole picture.

The Promissory Note is the legal document you sign where you agree to pay your mortgage. The Note lays out all the details: the amount you owe, the interest rate of the loan, the dates payments are to be made, et cetera. It also lays out the consequences and process of failing to make your monthly mortgage payment. In short, it’s a legal IOU.

What is a Mortgage?                                                  

The mortgage is the document you sign when you buy your home that gives the bank you are borrowing from the right to take your property by foreclosure if you fail to pay according to the terms laid out in the Promissory Note.

In other words: the Promissory Note is your promise to repay the loan for your home. The Mortgage is the document that describes what happens if you don’t.

At this point, everything seems pretty straightforward. Unfortunately, it doesn’t stay that way for long.

The Start of the Foreclosure Process

If you are late on a payment, the Bank is able to declare you in default under the Promissory Note. And, based on the standard Promissory Notes, they are often able to demand that the note be paid in full immediately (which is called an acceleration of the note).

Fortunately, people that find themselves receiving Notice of Default from the bank in the mail do have options. According to §809 of the Fair Debt Collection Practices Act, the consumer is able to notify the Bank that the debt, or any section of it, is disputed. At that point, the Bank has to cease collection of the debt until they obtain verification of its existence, which usually includes the name and address of the original creditor and the original Promissory Note.

As Banks often sell Promissory Notes to each other, or chop them up and split your Promissory Note into 20 (or more) Collateralized Debt Obligations that trade on Wall Street, this can be complicated for them to do quickly. At the same time, expect them to have an army of lawyers working on this.

All of this being said, we have to take into account the details of your situation. This is just the standard initiation of the foreclosure process that we’ve seen over the countless foreclosure cases we’ve handled.

Often, disputing the debt gives you time to mount a full legal defense to save your property. The Bank has seasoned, well-trained lawyers at their disposal. You should too.

At Jacobs Legal, we’re here to go over the details of your situation and help you find the best way to protect your home. Contact us today to schedule a consultation.