| > Advice For Borrowers Lost Mortgage Documents May Cause Future Problems
by Benny L. Kass
Question: We recently paid off our mortgage. The mortgage company sent us a release from the county in which our property is located. However, they claim that they do not have the original promissory note or deed of trust which we signed when we first obtained this loan. The lender has agreed to send us a copy of these legal documents. We took out the mortgage 17 years ago. Over the years, our loan has been transferred to at least four other companies. Are we protected? Answer: I do not think you have to be concerned, but -- as you will see from my answer -- there are some steps you should take to protect yourself. When you obtain a mortgage loan, you will sign two important legal documents: a promissory note and a Deed of Trust. The promissory note is your commitment to make monthly payments to the lender. It will spell out the terms and conditions of the loan -- such as the interest rate, the maturity date, and the consequences should you be in default of your payments. If you do not make your payments, your lender has the legal right (pursuant to the terms of the promissory note) to file suit against you in a local Court. If the lender obtains a judgment against you from the Court, the lender has a number of ways in which to collect on that judgment. The lender can attach assets which you have in banks or other financial institutions. The lender can garnish your wages -- which means that your employer must turn over a certain percentage of your paycheck to the creditor until the debt has been paid in full. According to the Department of Labor: "Wage garnishment is a legal procedure in which a person's earnings are required by court order to be withheld by an employer for the payment of a debt..." It should be noted that the Consumer Credit Protection Act (CCPA) prohibits an employer from discharging an employee whose earnings have been subject to garnishment for any one debt, regardless of the number of levies made or proceedings brought to collect it. Furthermore, the law limits the amount of earnings that may be garnished in any workweek or pay period to the lesser of 25 percent of disposable earnings or the amount by which disposable earnings are greater than 30 times the federal minimum hourly wage. Alternatively, once a creditor has a judgment against you, the creditor can go to Court to force the sale of your property so that the sales proceeds will be used to satisfy the judgment. If you are married and the house is titled as "tenants by the entirety," a creditor must have a judgment against husband and wife in order to cause the house to be sold. On the other hand, if you own the house on your own -- or as joint tenants (or tenants in common) with another person -- the house can still be sold. In a joint ownership situation, where the judgment is against only one of the property owners, while the house can be sold, only half of the sales proceeds can be used to satisfy the judgment. The other half will go to the owner against whom there is no court judgment. As you can see, collecting on a promissory note is complicated, and requires court action. Going to Court is both expensive and time consuming. Accordingly, mortgage lenders look to the second document which you sign, namely, the Deed of Trust. A Deed of Trust is a legal document which you also will sign at settlement. This document deeds your house to a trustee (or trustees) selected by your lender. According to the terms of this document, so long as you make your payments on a timely basis, and are not otherwise in default, the trustees can take no action against you or the property. However, once you are in default, the trustees are given the power to sell your house at a foreclosure sale. Some states require Court approval of such a sale, while other states do not. If you -- as the borrower -- believe you are not in default, the burden is on you to seek Court protection against any such foreclosure sale. Oversimplified, the Deed of Trust gives your lender a procedure to quickly -- and inexpensively -- foreclose on your house should you be in default. The Deed of Trust is recorded on the land records where your property is located. It puts the world on notice that your house is subject to a loan, so as to assure that you cannot sell your property to a third party and try to avoid paying off your mortgage. When you finally pay off your loan, the lender should do two things: - Return the original promissory note and deed of trust to you, with the notation (right on the face of the documents) that the loan has been paid and cancelled.
- Arrange to record a release (also called a "certificate of satisfaction") of the Deed of Trust with the Office of the Recorder of Deeds where that document was first recorded. Some lenders -- such as yours -- will actually record the release with the local government. Other lenders will send you the release, which you must arrange to have recorded.
You have advised that your lender does not have your original documents. I am not concerned about the deed of trust, so long as a proper release has been recorded. Your house is free and clear of any mortgage and you can now sell it (or obtain a new loan) knowing that the old obligation is no longer shown on the land records. However, I am concerned about the missing promissory note. That is, in effect, a live document. Some unscrupulous character can find that document and make demand on you to pay according to the terms of the note. Is this a real problem? Not really, but it may be a hassle for you, and you may have to go to Court to defend and protect yourself. What should you do? Clearly, you should try to locate the original promissory note and have it marked "paid and cancelled." But if it is absolutely impossible to find that note, ask the current lender to send you a copy of the note, with a cover letter stating that it has been paid in full and has been cancelled. In 99 out of 100 situations, nothing will ever happen. But there are many unsavory people out in this world, and an ounce of protection will save you tons of problems in the future. | 
