Private Investor Assignment of Mortgage
The issue of Assignment of Mortgage frequently appears in estate planning private asset purchase matters where a non-institutional note and mortgage have been given. Most often the facts involve property that was sold by the parents, who took back a note for a portion of the purchase price and a mortgage on the property to secure repayment of the note. As a portion of an estate plan or to generate capital to fund or contribute to a retirement plan, the parents have requested their estate planner or real estate advisor to transfer the note and mortgage, either to their heirs or to a subsequent purchaser. An Assignment of Mortgage is prepared and the “deal is done.” Not so fast…
Without at least a working knowledge of Article 3 and Article 9 transactions in the Uniform Commercial Code, the preparer of the Assignment of Mortgage may render the assignment worthless. Absent an effective transfer of the debt, the assignment of a mortgage is a nullity, meaning without effect. In Florida, the mortgage follows the note, not the other way around. Article 3 of the Uniform Commercial Code determines the right of the purchaser to enforce a mortgage note. The touchstone of proper acquisition is physical possession of the note, but that alone is insufficient. The note must either be endorsed, signed by the prior owner, in blank or by specific endorsement to the purchaser or assigned by separate instrument. An Assignment of Mortgage can include within its terms an assignment of the note as well, complying with the “separate written agreement” to sell the note provided under Article 9, governing secured transactions.
The indorsement of the note is a straightforward procedure. At the bottom of the note, if there is room and if not on the back side of the original note, a typed or handwritten indorsement transferring the note to “blank” or to a specific person or entity and signed by the owner of the note is all that is required. Failing the indorsement, the assignment of the note may be included in the Assignment of Mortgage in order to transfer the note and mortgage in the same instrument, which will be recorded in the public record of the county were the property is located.
Failure to properly transfer both the note and mortgage will result in the heirs or purchaser being unable to enforce the note. While corrective action may be taken during the life of the person transferring the note, the process becomes more complicated once the transferor is deceased. Accordingly, steps should be taken to insure both the note and the mortgage are properly transferred to heirs in the estate planning process or to subsequent purchasers when cash is being generated to avoid future enforcement issues.
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