Many people throughout the country obtain a mortgage to finance the purchase price of their home. Unless you have the cash to pay for the home outright — or other means of borrowing money — you will likely go the route of choosing one of the popular mortgage types that lenders make available.
No matter what type of mortgage you obtain, and no matter which company you obtain it from, the mortgage itself is a document you will sign that essentially promises that you’ll pay back the money you are borrowing and secures the obligation against your real property. The mortgage outlines the terms of the repayment plan, including the length, the number of payments, the interest rate and type, and the monthly payment plan.
If you don’t pay according to the terms of your mortgage, the lender holds the right to foreclose on the property, which allows them to take possession of it and cancel the loan without any recourse to you.
It’s possible that the lender you originally obtained the mortgage from will sell the promissory note to another company or investor, who will then be the one responsible for collecting payment. This new entity will also hold rights to foreclosure for non-payment — as long as the paperwork is done properly.
The most common way that this transfer of note is done is through what’s known as an allonge. What the allonge says, whether it was used properly and how it was done all plays a vital role in how a potential foreclosure may proceed.
Below, we explain in greater detail the role of the allonge in foreclosure.
How Home Purchases Work
When a person needs to borrow money to finance the purchase price of a home, they’ll typically turn to financial institutions that have specific loan programs in place for that.
During the home closing process, there are two major documents borrowers will need to sign. The first is the promissory note, which is a document that promises that you will repay your loan on the agreed-upon terms.
The second depending on the state you reside in, is either the Deed of Trust or a mortgage. These are what secures the promissory notes against your real property.
While these documents go hand-in-hand — and are terms that are often incorrectly interchanged — they serve different legal purposes.
The promissory note gives the owner the ability to collect money on the home loan. The mortgage, or Deed of Trust, will give the owner the power to take any legal action regarding the property if necessary, which includes foreclosure proceedings.
What Happens When Mortgages Are Sold
There are a variety of reasons why your original lender may sell your mortgage to a new lender. From the borrower’s perspective, the only thing that should change when their mortgage is sold is that they’ll make their payments to a new company. The new owner of the mortgage is not allowed to change the original terms of the mortgage, as that is set in stone at the signing table.
For mortgages to be legally transferred between two owners, an Assignment of Mortgage (“AoM”) must be completed. In addition to transferring the power to collect money from the original lender to the new lender, the AoM will transfer the ability for the new lender to take legal action to foreclose on the property.
When an AoM takes place, generally an allonge will be attached to the promissory note. The allonge is an additional piece of paper that gets attached to the promissory note allowing for the collection of the debt
The Problem with Allonges
Allonges have been around for centuries. They derive from French law and were traditionally attached to bills of exchange when there wasn’t enough room on the original document for the additional signatures.
While they are certainly valid legal documents, there are some concerns today about how they are applied and added to mortgage contracts. Allonges are only intended to be utilized when there isn’t enough space on the original promissory note for a “wet” endorsement to fit.
However, with AoMs becoming more commonplace over the last 20 years, some banks began to use allonges improperly. Once this was completed, they used the allonges to allege ownership of a note, which they then used to foreclose on a home.
There have been many legal challenges to the use of allonges in foreclosure cases, with varying results for both sides.
Are Allonges Legal?
The short answer is that allonges are indeed legal. However, like any other legal document, there are rules and regulations parties must follow to ensure they are legal.
First, allonges are only to be used in the above-stated cases — when there’s simply no more room to attach additional signatures. Second, allonges are supposed to be “wet” endorsements, or signed by hand. Third, the party purchasing the mortgage is supposed to be in possession of the original promissory note when they’re doing so.
What’s more, all AoMs have to be recorded at the county where the property is located, and the valid allonge must be attached at that time of recording.
The entity purchasing the promissory note also has to follow certain state-specific rules and regulations for how they must be filed, where they must be filed and in what timeframe they must be filed. If all of these are not followed then the AoM can be deemed invalid and, in turn, their rights to foreclosure according to the allonge are invalidated as well.
Work with an Experienced Foreclosure Attorney
If your mortgage has been sold and the new owner of your promissory note is trying to foreclose on your property, you may have some legal recourse. What that recourse is will depend on a number of factors, including whether they attached an allonge to the promissory note and if it was done legally.
Cases like these are not easy for individual borrowers to fight on their own. It’s times like these that you need the help of an experienced foreclosure law firm like Babi Legal Group.
Our attorneys have 20 years of experience in real estate, and are well-versed in all of Michigan’s rules and regulations as they pertain to mortgages and allonges.
Contact us today to learn more about how we can help you.