Default NoticeAs previously discussed, you'll receive multiple letters regarding the loan default and efforts by the lender to collect past due amounts, but the formal "default notice" is one of the most important documents you'll receive and may start the clock ticking on the foreclosure lawsuit in judicial sale states or the foreclosure sale in non-judicial sale states. The exact language required in your formal "default notice" is contained in either your mortgage, the promissory note or both which is why its important to keep a copy of the final default notice and any other correspondence from the lender to make sure they complied with these requirements. As discussed in our "Foreclosure Lawsuit" section, the lender's failure to follow the exact procedures and use the specific language required by your loan documents can be a strong defense in a foreclosure lawsuit and may help to get the lawsuit dismissed altogether. In extreme circumstances, the lender's mistakes may result in rescission of the contract and loan documents meaning the property is owned free and clear of that particular mortgage. Difference Between the Promissory Note and MortgageRegardless of which mortgage foreclosures methods are used in your state, it is essential to understand the difference between the two most important documents involved in the mortgage foreclosure process-the promissory note and the mortgage or deed of trust. The lender must have original copies of both documents to proceed with a mortgage foreclosure lawsuit, as well as originals of any subsequent assignments of your loan documents which is why these documents are so important.The promissory note is the actual loan agreement itself and contains the essential terms of the transaction including the total amount you owe, the interest rate and how its calculated as well as the amount and number of monthly payments. The mortgage, also referred to as a deed of trust in some states, is simply a security agreement which protects the lender as you literally pledge your property to the lender as security for the actual loan which is contained in the promissory note. This "security" for the lender must then be recorded in the county where the property is located to be a valid lien on your property and places the lender at the top of the list of creditors for your home. Many of the issues you've read about in the paper or seen on television involving illegal or improper documentation by the lenders involve these documents and the failure of the lender to maintain originals of both the note and mortgage or to properly record the transfer of the note and mortgage as required by state law. By recording most of the transfers under the MERS system(Mortgage Electronic Registration System)rather than the mandatory county records, many of the transactions are no longer valid as a result of recent court decisions denouncing the MERS system. Be sure to discuss this with your attorney if you have one and to read more about possible defenses related to invalid assignments and transfers in our "Foreclosure Lawsuit" section.
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