What Is a Mortgage Note?
A mortgage note, or promissory note, is a legal document that outlines the terms of a loan for purchasing property. The owner of the note may sell it at any point for a lump sum of cash to a buyer in the secondary mortgage note industry.
When a lender agrees to give money to a borrower to purchase property, the lender and borrower agree on a plan for repaying the borrowed money. The plan is recorded as a mortgage note, a written document that specifies deadlines and payment amounts agreed upon by both parties.
What Does a Mortgage Note Do?
Mortgage notes give lenders security during the lending process, as without the note, borrowers would not be legally bound to repay the loan. Once the note has been signed by both parties, it is legally binding and gives the lender the ability to take legal action if the borrower defaults on the loan.
A mortgage note legally binds the borrower to repay a debt and specifies:
- How much was borrowed
- The interest rate
- Who borrowed and who lent
- The plan for repayment
- What should happen if payments stop
Mortgage notes give the lender control of the property until the loan has been repaid in full.
Selling a Mortgage Note
Selling a mortgage note is legal and can be done as long as the borrower is notified during the application for the loan. Whether the seller is an institution or private entity, they are legally required to notify the borrower of the change.
A mortgage note is usually sold to a buyer when the seller no longer wants to wait for the payments and needs a lump sum of cash immediately. In this case, the current owner of the mortgage note would sell the note, relinquishing his or her claim to the obligations of the borrower. The only difference to the borrower is where and to whom they send their payments.