Mortgage, Notes And Deeds: What’s The Difference?
When people purchase property, they often say that they are taking out a “mortgage,” or that they have to “pay the mortgage.” However, this term is actually very specific, and includes more than just the mortgage.
When you purchase property, if you take out a loan, your mortgage is actually two documents-your promissory note, and your mortgage (along with any other addendums or modifications to those documents).
The promissory note is often what we call the loan. It is the document that says what you owe, what the interest is, what the payments will be, and how long you will make payments for, among other important things.
Most residential properties use an installment note. Every month you will make another payment or installment on the note, and at the end of a given term—say, 30 years—the loan will be considered paid in full, assuming you keep paying as agreed to. However other types of loans may require one lump sum, or may have a balloon payment at the end of the loan.
Of course, you know that your promissory note is secured by the home you are buying. In plain terms, that means that if you don’t pay the note, the lender can foreclose on, and take your home. It does that by requiring you to sign the mortgage.
The mortgage does not actually obligate you to pay money back. Rather, it works in tandem with your note, and allows the lender to take your property, foreclose on it, should the note not be paid. In other words, the reason why your home is the security for the note, is because you signed the mortgage.
The mortgage is filed in the public records of the county where the property is located, and serves as notice to the world that the lender has a lien on the property. When and if you pay the loan in full, the lender will then file a satisfaction of mortgage, telling the world that the lien is gone because the note has been paid.
Don’t Forget the Deed
With all of this, we haven’t mentioned the deed. The deed actually has nothing to do with owing money—it just means that you own the property. In Florida, you will own the property, in full, even if you still owe money on the property, and even if you have a recorded mortgage.
The mortgage is not an ownership interest for the lender—it is just a vehicle that the lender uses to foreclose, if needed. Because of that, any person on the deed must sign and be on the mortgage. However, someone can be on the mortgage, but not be someone who is on the promissory note.
We can help you with your real estate closing related questions. The Law Offices of Larry E. Bray is ready to help. Contact West Palm Beach real estate lawyer Larry E. Bray today to schedule a consultation.