Promissory Note, Mortgage, and Deed

Practicing law in Southwest Florida, especially in this day in age, I find myself routinely explaining the differences between a Promissory Note (Note), a Mortgage, and a Deed. This week, I will briefly review each of these documents as well as their legal effect.

Law Property GuidingFirst, a Deed is the legal document that is used to transfer ownership of real property. In Florida, it must be written, signed, and witnessed by two individuals. Every Deed should be recorded in the public records in the county where the property is located. The recording of the Deed notifies the world that you are the owner of the property. An unrecorded deed is vulnerable to being lost or destroyed, being made invalid, or made subordinate to any future lien that may be placed against the property.

Next, we have the Promissory Note. The Note is the document that lays out, among other things, the amount of debt owed, the amount of interest, and the payment schedule. This is the contract that makes the borrower individually liable to the Lender for the money that is being borrowed. If you don’t pay your payments as dictated by the Note, the Lender can and will come after you for the debt.

Lastly, we have the mortgage. The mortgage is a security instrument that protects the Lender’s investment. Think of the Mortgage as a security blanket that is wrapped around the Note. If the Borrower becomes delinquent on the Note, the Mortgage, which secured the debt, allows the Lender to foreclose on the real property to recoup their investment. If you have a Mortgage and fail to make your payments, not only can the Lender look to you for repayment (per the Note), but can now also foreclose on your home (per the Mortgage).

These distinctions are important in many different contexts. But, for the sake of efficiency, I will illustrate a common issue in the domestic realm:

A married couple decides that after trying their best to reconcile their differences, a divorce (dissolution of marriage) is necessary. More often than not, the spouses have accumulated property during the marriage. Amongst the property, is a home which was purchased jointly by them during the marriage.  Both spouses’ names are on the Deed, Note, and Mortgage, all of which have been properly executed in accordance with Florida law. (In some situations, only one spouse obtains the loan. However, if the property is their Homestead, the other spouse would be required to be on the mortgage as well.)

During the divorce, the couple decides that the Wife should retain the marital home. The Husband signs a Quitclaim Deed (see: Deed Blog) conveying sole ownership of the home to Wife. Unfortunately, the Note and Mortgage are still in both the Husband’s and Wife’s name. So, yes, the Husband no longer “owns” the home (per the Deed), but he still “owes” the Lender (per the Note and Mortgage).

Let me explain: when the couple purchased the home, they both borrowed the money and promised to repay the Lender for the loan. Additionally, the loan was likely approved based on the income and credit scores of both the Husband and Wife. The unfortunate fact that the marriage has subsequently failed, and title has been transferred, has no bearing on their joint obligation to pay the debt. In our example, I understand that it’s a somewhat unfair situation for the Husband, but if dealt with properly, most of the risk can be negated beforehand.

In the above situation, we would generally try to work out a refi at some agreed upon point in the future. If this is not possible, the property could be sold to release the Husband of his financial obligation on a home that he no longer legally owns. If applicable, we would also structure alimony payments in such a way as to protect the Husband for as long as possible pending the refi or sale.  This is necessary, because if the Wife fails to make the payments and a foreclosure is pursued by the Lender, the Husband can become an unwilling party to the foreclosure, as well as a possible deficiency judgment, damaged credit score, and even being forced into a bankruptcy.

This is a generalized discussion and is not intended for any particular set of facts and should not be relied upon as such. By no means does this blog create an attorney-client relationship or attorney-client privilege between the Attorney and the readers. The law frequently changes as new cases are decided and published regularly. Anything relied upon in this or any blog, is done so at the readers own risk.

If you are considering a divorce or bankruptcy in Southwest Florida, or are interested in discussing your options, you should speak with a licensed Florida attorney. If you would like schedule a free consultation, or have any questions, comments, or suggestions on upcoming topics, please comment below or email GuirguisLaw@gmail.com.

VERNON W. GUIRGUIS, ESQ.
The Guirguis Law Firm, PLLC
1423 S.E. 16th Place, STE 204
Cape Coral, Florida 33990
239.573.9939 Telephone
239.603.9939 Facsimile

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Posted on September 5, 2012, in Legal and tagged , , , , , , , , , , , , , , . Bookmark the permalink. Leave a comment.

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