Understanding the Mortgage Process

It’s important to understand how the mortgage and real estate lending process functions in order to gain a better grasp of the potential defenses a property owner might have in a foreclosure action. To help you with that process, we have compiled an overview of financed real estate transactions in the paragraphs that follow.

If you or someone you know is facing foreclosure, the Fort Lauderdale and Hollywood foreclosure defense attorneys at the Law Offices of Evan M. Rosen can help. You are welcome to read more below about the mortgage process. However, for a consultation with one of our experienced foreclosure defense attorneys, call us at 754-400-5150 or fill out our online form.

In all Florida real estate transactions that involve a loan, there is a note, which is signed only by the borrower. There is also a mortgage that is signed by the borrower, anyone who has a legal interest in the property, two witnesses, and a notary. The note serves as documentation of a borrower’s specific promise to repay the money lent. It provides certain details, such as the interest rate, how long the repayment period lasts, and what will happen if payments are late. Because anyone who signs a note could be legally responsible for the payment under its terms, witnesses or notaries do not sign these. Notes are supposed to be unconditional promises to pay, which makes them “negotiable instruments.” A true negotiable instrument can be freely transferred among parties as long as certain legal requirements for “negotiation” are met. If a note is not a “negotiable instrument," it still may be transferred but the process is different. In some instances, non-negotiable instruments may not be transferred.

A mortgage is the document that the borrower uses to pledge the property as security or collateral for the loan. This allows the lender to foreclose if the buyer does not fulfill his or her obligations under the mortgage or note. Mortgages typically contain many clauses that are not in the note like provisions that require the mortgagor/borrower to pay the taxes, maintain insurance, and keep the property in good condition. It also usually details what will happen if there is an early “pre-payment” or if the borrower fails to make payments, which is known as default.

Simply put, a note is an I.O.U. and a mortgage is a legal promise that says if “I,” the borrower, don’t pay “U,” the lender, "U" can go to court and take my property. A mortgage is recorded in the county recorder’s office, but a note is not.

In terms of how the lender’s interest is applied to the subject property, Florida is a “lien theory” state. Most states fall into one of three categories: lien theory; title theory; or intermediate theory. In lien theory states like Florida, the lender acquires a “lien” or a security interest on the subject property. In states that operate under the title theory, the lender actually holds legal title to the property until the debt is paid off. Under an intermediate theory, the borrower gets title to the property, but the lender does not have to go through a difficult foreclosure process to take title if the borrower defaults.

Notes and mortgages are frequently sold and resold on a "secondary mortgage market." These sales occasionally take place within minutes after a closing. Some closings show an original lender as one entity, even though the money is really coming from another. This is called "table funding" and it is done for several different reasons.

In many instances, notes and mortgages are "securitized." This is a process in which notes and mortgages are bundled together into a trust or other investment "vehicle." Mortgage-backed securities ("MBS") represent shares of ownership of the notes and mortgages in those "vehicles." The shares are sold to investors either privately, or publicly, on Wall Street. The trusts, if properly formed are classified as a specific legal entity known as a Real Estate Mortgage Investment Conduit ("REMIC").

Mortgages are made into securities or REMICs for several reasons. One is that it gives lenders a way to sell their loans for cash, so they can lend out more money to more borrowers. This enables lenders to make more money. This process continues today, not just for mortgages but for all kinds of consumer transactions. Even utility payments and rents can be securitized. This paradigm was a major part of the 2008 and beyond "mortgage foreclosure crisis."

Another reason for mortgage securitization involves taxes. If REMICs are drawn up properly, they are tax exempt. Investors only pay taxes on their individual gains. The REMIC does not pay any tax.

In foreclosure cases, banks often rely on the documents that form the REMIC to prove their case. This often consists of a "pooling and servicing agreement" and a "mortgage loan schedule." If the documents that the bank uses to make its case do not support the right to foreclose, the case should be dismissed, or judgment should be entered in the borrower's favor. These documents or "exhibits" in a case can consist of thousands of pages. Discovering problems within those documents is not easy and it can be tedious but the Fort Lauderdale and Hollywood foreclosure defense lawyers at the Law Offices of Evan M. Rosen are extremely experienced in finding issues in cases. And those issues can create leverage to strike a fair deal to help resolve your mortgage issues and foreclosure case.

The information provided is intended to be an overview to help you understand how the mortgage process works and some of the defenses that might be available depending on your specific situation.

To find out more about mortgages and foreclosures or to inquire about how our Hollywood and Fort Lauderdale foreclosure defense attorneys can help, contact us today for a consultation at 754-400-5150 or through our online form.

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