Most homeowners in the State of New York hire an attorney to represent them when buying or selling a house. The attorney handles the paperwork, deals with the bank lawyer, and the other parties’ attorney. Unfortunately when homeowners fall behind on their mortgage payments, the banks bring foreclosure lawsuits against them. Homeowners will sometimes research their rights on the internet to determine whether they have viable defenses to their foreclosure proceedings. When reviewing the terms of either a summons and complaint in foreclosure or with regard to the financing of a home through a financial institution, at the time of purchase, it is important to know actually what the specific terms utilized by financial institutions mean.
The Note
The loan document or note refers to a promissory note given by the borrower to the lender. The promissory note creates a contract wherein the borrower agrees to pay a certain amount of money to the financial institution pursuant to specific terms. With regard to notes involved in real estate transactions, the length of the repayment obligation is usually 15 or 30 years. The interest rate on the financial obligation determines how much the borrower will have to pay the financial institution each month. In addition to repaying the interest and principal on the loan, taxes and insurance on the residence are usually added to the monthly payment costs.
A simplified way to look at the promissory note is that it is basically an “IOU”. The note actually does not specifically relate to the property involved. It exists on its own as a financial obligation between the borrower and the financial institution. If the borrower does not make timely payments pursuant to the terms of the promissory note the lender can sue the borrower on the note for breach of contract.
The Mortgage
Let’s start with what a mortgage is not. A mortgage is not a “promise” to pay the loan on the property. The mortgage is not any type of promise. The mortgage is attached to the property by the debt created by the note. The mortgage contains language similar to a deed that gives the lender the right to take the property back if the borrower does not make the timely payments pursuant to the promissory note. In effect the mortgage attaches the note to the property and gives the lender a remedy to sell the property in the event the terms of the promissory note are not adhered to by the borrower.
