Gainesville Short Sale – What is the Difference between Note or Promissory Note and Mortgage or Deed of Trust? A note (promissory note) is – very simply – a contract whereby a party makes a promise to pay a sum of money to another party under specific terms. In real estate, it is typically a borrower agreeing to make monthly payments of principle and interest over a period of time to a lender.
The note has nothing to do with the property itself, and can technically exist without any collateral at all. If the Gainesville borrower doesn’t pay, the LENDER or short sale bank can sue “under the note and obtain remedies for breaching that contract. A “servicer” aka “debt collector” cannot if they have no equitable interest.
While there are differences between a mortgage and a deed of trust, let’s ignore them for a moment, and use the term mortgage.
A mortgage is actually a transfer of an interest in property. While a mortgage is tied to the underlying debt created by the note, it is not a promise to pay the debt. It really isn’t a “promise” to do anything. Instead, it contains “granting” language – like a deed – which gives the lender the right to take the property if the borrower goes into default and doesn’t pay under the terms of the note signed in blue ink. There are clauses in the loan that allow for this to happen such as the acceleration and due on sale clauses.
Key Differences of Note and Mortgage
A note is singed by the people who agree to pay the debt. A mortgage is singed by those who own the property being mortgaged. In a typical residential setting, signers of the note and the mortgage are the same, but they do not have to be.
A mortgage needs to be recorded in the county or town recording office, the note does not. Instead, the note goes directly to the lender. This is the “instrument” that secures the “note” to the house.
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