What's the difference between a mortgage assignment and an endorsement (transfer) of the note?

When you take out a loan to buy a home, you're usually required to sign two documents: a mortgage (or deed of trust) and a promissory note. "Assignments" and "endorsements" are how these documents get transferred between banks.

If you're facing a foreclosure and the foreclosing bank doesn't have the proper endorsements and assignments, you might have a defense to the foreclosure.

Understanding Mortgage Transactions

To fully understand the difference between an assignment of mortgage (or deed of trust) and endorsement of the note, you must understand the basic terms and documents involved in a residential mortgage transaction.

• Mortgagee and mortgagor. In a mortgage, a "mortgagee" is the lender. The mortgagee gives the loan to the "mortgagor," the homeowner/borrower.
• Loan documents. Again, the loan transaction consists of two main documents: the mortgage (or deed of trust) and a promissory note. The mortgage or deed of trust 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 or deed of trust is to provide security for the loan that's evidenced by a promissory note.
• Loan Transfers. Banks often sell and buy mortgages from each other. An "assignment" is the document that is the legal record of this transfer from one mortgagee to another. In a typical transaction, when the mortgagee sells the debt to another bank, an assignment is recorded, and the promissory note is endorsed (signed over) to the new bank.

These documents are separate, and each has its own distinct set of rules that govern how they're exchanged between banks.

Assignments of Mortgages and Deeds of Trust

An assignment transfers all the original mortgagee's interest under the mortgage or deed of trust to the new bank. Generally, the mortgage or deed of trust is recorded shortly after the mortgagors sign it, and, if the mortgage is subsequently transferred, each assignment is recorded in the county land records.

Courts have dismissed some foreclosure cases when the foreclosing party didn't have an assignment. But some states don't allow borrowers to challenge the legality of assignments, saying they don't have standing.

And certain states follow the general rule that "a mortgage follows the note." So, a missing 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 go ahead even if a valid assignment doesn't exist. Whether a written, recorded assignment is needed depends on state law.

Endorsements of Promissory Notes

When a loan changes hands, the promissory note is endorsed (signed over) to the new owner of the loan. In some cases, the note is endorsed in blank, which makes it a bearer instrument under Article 3 of the Uniform Commercial Code. So, any party that possesses the note has the legal authority to enforce it.

An entity that owns the loan has standing to initiate a foreclosure.

Talk to an Attorney

Assignments and endorsements prove which party owns the debt and, therefore, may bring the foreclosure action. If the documentation isn't correct or complete in your case, you might have a defense against a foreclosure.

If you're facing a foreclosure and think the foreclosing party in your case doesn't have the right documentation, consider talking to an attorney who can give you information about the laws in your state, let you know whether an argument based on the right to foreclose, called "standing," is likely to be successful in your case, and give you advice about what to do in your particular circumstances.