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

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

By , Attorney

If you took out a loan to buy your home, you most likely signed a mortgage (or deed of trust or another security instrument) and a promissory note. (This article uses the term "mortgage" to cover deeds of trust and other similar documents.)

  • Mortgage. The mortgage is the document that pledges the property as security (collateral) for the debt and permits the lender to foreclose if you fail to make the monthly payments.
  • Promissory note. The promissory note is the document that contains your promise to repay the loan.

The purpose of the mortgage is to provide collateral for the debt that's evidenced by the promissory note.

Banks and mortgage companies frequently sell and buy home loans from each other. An "assignment" is the document that's the legal record of this transfer from one entity to another. If you're a homeowner facing foreclosure and the lender sold your loan to a new owner but didn't complete a proper assignment of mortgage, you might be able to challenge the foreclosure.

How Home Loan Transfers Work

When a lender, bank, or mortgage company sells a home loan to another entity, the seller usually takes the following steps.

  • It endorses the promissory note (signs it over) to the new loan owner. The promissory note owner is the only party with the legal right to collect on the debt.
  • It prepares an assignment of mortgage to the new entity and, usually, records the assignment in the county records. An assignment of mortgage gives the loan seller's rights under the mortgage, including the right to foreclose if the borrower doesn't make payments, to the new owner of the loan.

What Information Is Contained In an Assignment?

Assignments typically have the following information:

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

Was the Mortgage Property Assigned?

An assignment of mortgage serves as proof of the loan's transfer from one party to another. Courts have dismissed some foreclosure cases when the foreclosing party couldn't produce an assignment. Depending on state law, if the lender doesn't have an assignment or didn't record it properly, you might be able to challenge the foreclosure on the grounds that the foreclosing party doesn't have the right to foreclose or didn't follow proper procedures.

But some states don't allow borrowers to challenge the legality of assignments. For example, the West Virginia Supreme Court has said only the parties to assignments of mortgages have standing to challenge their validity. Borrowers don't have standing because they're not parties to the assignments or intended third-party beneficiaries. (See Pavone v. NPL Mortgage Acquisitions, LLC.) Also, some states follow the general rule that "a mortgage follows the note." So, the absence of an assignment of mortgage won't necessarily stop a foreclosure. If the foreclosing party is clearly entitled to enforce the promissory note, the court may allow a foreclosure to proceed—even if a valid assignment doesn't exist.

Whether a written, recorded assignment is needed depends on state law. 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 the chain of assignments has a gap, speak to a qualified attorney who can advise you about what to do in your circumstances.

Keep in mind that any given foreclosure or legal situation has many potential claims and defenses. Talk to local counsel or a legal aid organization to explore all possible defenses that might be available in your particular circumstances.

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