Foreclosure Defenses: Was There a Proper Assignment of the Mortgage?

If your mortgage has changed hands since you first took it out and the foreclosing bank doesn't have a valid assignment of mortgage, you might be able to challenge the foreclosure.

If you are a homeowner facing foreclosure and there has not been a proper assignment of mortgage, depending on state law, you might be able to challenge the foreclosure. Read on to learn more about assignments, why they are important, and find out what to do if you suspect there wasn’t a valid assignment of mortgage in your case.

Understanding Loan Transactions

To fully understand the role of an assignment in a mortgage foreclosure, you must understand the basic terms, documents, and players involved in residential loan transfers.

Mortgages and Promissory Notes

When you took out your loan, you signed both a mortgage (or deed of trust) and a promissory note. (Learn more in our article What's the Difference Between a Mortgage and Deed of Trust? For purposes of this discussion, the terms mortgages and deeds of trust are used interchangeably.)

The mortgage is the document that pledges the property as security for the debt and permits a lender to foreclosure if you fail to make the monthly payments. The promissory note is the IOU that contains the promise to repay the loan. The purpose of the mortgage is to provide security for the loan that is evidenced by a promissory note.

Mortgage Assignments

Banks frequently sell and buy mortgages from each other. An “assignment” is the document that is the legal record of this transfer from one entity to another. Assignments typically contain the following information:

  • the name of the assignor (the current owner of the loan) and assignee (the new owner)
  • the names of the borrowers
  • the date of the mortgage
  • the original amount of the mortgage
  • the original mortgage recording information, and
  • the property’s legal description.

The assignment of mortgage serves as proof of the transfer of the loan from one party to another.

Loan Transfers

When one bank sells the debt to another bank, the following actions are generally done to complete the transaction.

  • The promissory note is endorsed (signed over) to the new bank. (The owner of the promissory note is the only party that has the legal right to collect on the debt. Learn more in our article "Produce the Note" Defense in Foreclosure.)
  • An assignment of mortgage to the new entity is recorded in the county records. (An assignment of mortgage is necessary to assign the original bank’s rights under the mortgage, including the right to foreclose if you don't make payments, to the new owner of the loan.)

(Learn more in our article What's the difference between a mortgage assignment and an endorsement (transfer) of the note?)

What Happens When There Isn’t An Assignment to the Foreclosing Party

Courts have dismissed foreclosure cases when the foreclosing party cannot produce a written assignment of mortgage. Depending on state law, if the lender cannot produce a proper assignment or did not record it at the proper time, you might be able to challenge the foreclosure on the grounds that the foreclosing party does not have the right to foreclose. In Wyoming, for example, the assignment must be recorded prior to the start of the foreclosure. (Wyo. Stat. Ann. § 34-4-103).

In some cases though, the absence of a proper assignment of mortgage will not stop a foreclosure. If the foreclosing party is clearly entitled to enforce the promissory note secured by a mortgage, the court may allow a foreclosure to proceed even if there is no written assignment because of the general rule that “a mortgage follows the note.”

To learn the laws and legal requirements regarding mortgage assignments in your state, talk to a local foreclosure attorney.

Hiring an Attorney

If you're facing a foreclosure and think that there's a problem with the assignment of mortgage in your case, you should speak to a qualified attorney who can advise you about what to do in your circumstances.

Additionally, any given foreclosure or legal situation has many potential claims and defenses. It is recommended that you seek the advice of local counsel or a legal aid organization to explore all possible defenses that might be available in your particular situation.

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