Wednesday, July 7, 2010

Mortgage Definititons

When analyzing a person's real estate as asset, liability and its place in a bankruptcy, it is important to determine the exact status of the property.  There are three documents required to determine the 'who' and 'what' regarding real estate.

  1. Deed: The deed is document by which a person "owns" property.  A deed is a two or three page document that shows who has title to the real estate.  The deed will list who is on the title and therefore who is responsible for taxes and who has the right to pledge the property as security for a mortgage loan, second trust, HELOC  or line of credit.  The deed is like the title to a vehicle.
  2. Deed of Trust.  The deed of trust is the document that gives a lender a legal interest in the property that, among its 30 or so pages, gives the lender the right to foreclose on the property if the terms of a promissory note are not made on time (default).  Like the deed, the deed of trust must be 'recorded' at the courthouse where the property is located in order to be effective.
  3. Promissory Note.  A promissory note is the a promise to pay a certain amount.  Deeds of trust secure the payment of the underlying promissory note to the lender.

Different parties may be on the different documents and analysis of who signed which of the documents is required to determine the status of the property in a bankruptcy.  It is a good idea to go to the local courthouse and request copies of the recorded instruments (deed and deeds of trust, promissory notes are usually not recorded).  The copies of the documents you may have received at your closing are not the fully signed recorded copies.

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