Mortgage vs. Note

You may not realize it, but when you obtain a mortgage, you are actually signing two different legal documents.  The first document, the mortgage, gives the lender a security interest in the property that you are purchasing/refinancing.  It is this document which gives the lender the ability to foreclose on your property in the event of a default.  The second document, called the note, makes you personally liable for the debt.  It is the note that gives the lender the power to come after you personally for any outstanding balance in the event that the foreclosure and sale of the property does not payoff the outstanding balance on the mortgage (a common occurence in today’s real estate market where most properties are significantly underwater).  If you are behind on house payments and contemplating bankruptcy, it is important to note that the mortgage is not dischargeable.  If you are hoping to keep your house, you will have to cure any default and continue to make regular payments.  If you do not, the lender has the right to petition the court to be removed from the bankruptcy and to proceed with a foreclosure/sale.  But let’s say you decide you do not want to keep the property.  You want to walk away and get a fresh start.  Here is where it is important to recognize the difference between the two legal documents; while your mortgage cannot be discharged in bankruptcy, your note (i.e. personal obligation for the debt) is.  That means that by filing bankruptcy, you limit the lender’s rememdy to the sale of the property.  The lender gets whatever the property is worth up to the amount remaining on the mortgage, and you get to walk away with no remaing obligation to the lender.  For more information on how bankruptcy can affect you as a homeowner, contact the Law Office of Suzanne Szymoniak today.


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