The Weakest Link
One thing we found after purchasing over 50 real estate notes is that we sometimes get the chain of title missing 1-5 links in the chain! When we buy a note/mortgage we send the original files to our document custodian for document scrubbing of any defects or exceptions that create a break in the chain of title. We have purchased many notes with breaks in the chain, and sometimes it takes hundreds of dollars to fix it.
When someone buys a home with a bank loan, the bank loans the money to purchase it from the seller, and the bank will want a promissory note signed by you that you will pay it back. They then put a lien on your home to secure it if you do not pay it back. Its usually a mortgage, or deed of trust. In some states you hold the deed, in others, the lender does.
And don’t confuse a deed of trust with a deed. He who owns the property has the deed. A deed of trust is similar to a mortgage, an encumbrance on the property that can be removed when paid off.
And since the banks have the right to sell the loan, they sell the note with the mortgage/deed of trust combined. If there are any missing documents (breaks in the chain of title), the document custodian goes about trying to find the original, or get a new original created & signed, or in some cases, an Affidavit of Lost whatever is required depending on what is missing.
I have seen Lost Note Affidavits, Lost Assignment Affidavits, Lost Allonge Affidavits, etc. One time we had multiple breaks erased in the chain of Assignments since the missing ones were under MERS, as was the original lender, and they were able to be skipped under the MERS umbrella.
Recently, we have purchased a couple of notes from an equity fund that have been delayed because of missing documents, and while its nice of them to fix this before they sell it, as many don’t, it makes me wonder why they are doing this now when they sell it, vs. when they first buy it.
We do it first for a number of reasons, for example, if we have to foreclose, the attorney needs to show that we have the complete chain of title, or the case will be thrown out because there is doubt you really own it. And during that time frame, anything can happen, they can file for bankruptcy, or another lien can foreclose, or they can burn it down. Or when we go to sell it, we want to be able to do it quickly, and not wait for the missing documents.
Fixing breaks in your chain of title when you buy a note is a good habit to get into…