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Banks and mortgage companies frequently sell and buy home loans from each other. An "assignment" is the document that's the legal record of the mortgage transfer from one entity to another. If you're a homeowner facing foreclosure and the lender sold your loan to a new owner but didn't complete a proper assignment of mortgage, you might be able to challenge the foreclosure in court.
If you took out a loan to buy your home, you most likely signed a mortgage, deed of trust, or another security instrument and a promissory note. (This article uses the term "mortgage" to cover deeds of trust and other similar documents.)
The purpose of the mortgage is to provide collateral for the debt created by the promissory note.
When a lender, bank, or mortgage company sells a home loan to another entity, the seller usually takes the following steps.
Assignments typically have the following information:
An assignment of mortgage serves as proof of the loan's transfer from one party to another. Courts have dismissed some foreclosure cases when the foreclosing party couldn't produce an assignment.
Depending on state law, if the lender doesn't have an assignment or didn't record it properly, you might be able to challenge the foreclosure on the grounds that the foreclosing party doesn't have the right to foreclose or didn't follow proper procedures.
In Wyoming, for example, the assignment must be recorded prior to the start of the foreclosure. (Wyo. Stat. Ann. § 34-4-103).
However, some states don't allow borrowers to challenge the legality of assignments. For example, the West Virginia Supreme Court has said only the parties to assignments of mortgages have standing to challenge their validity. Borrowers don't have standing because they're not parties to the assignments or intended third-party beneficiaries. (See Pavone v. NPL Mortgage Acquisitions, LLC.)
Also, some states follow the general rule that "a mortgage follows the note." So, the absence of an assignment of mortgage won't necessarily stop a foreclosure. If the foreclosing party is clearly entitled to enforce the promissory note, the court may allow a foreclosure to proceed—even if a valid assignment doesn't exist.
Whether a written, recorded assignment is needed depends on state law. Talk to a local foreclosure attorney to learn the laws and legal requirements regarding mortgage assignments in your state.
Mortgage Electronic Registration System, Inc. (MERS) is a company that the mortgage banking industry created to simplify the assignment process.
In many mortgage transactions, the mortgage will designate MERS as a nominee for the lender. In other cases, the loan might be assigned to MERS (solely as a nominee for the loan owner) at some point later in its life cycle after the loan closes.
MERS then acts as an agent for the loan owner but doesn't actually possess a beneficial interest in the note. Instead, MERS simply tracks the mortgage as it's transferred from owner to owner. Once a loan has been assigned to MERS, it can be bought and sold any number of times later without recording assignments.
Don't be surprised if you find out that your mortgage was assigned to MERS at some point. In most cases, the loan will have to be assigned out of MERS' name before a foreclosure can begin.
Learn how to find out who owns your mortgage and who services it.
Get information on what happens if your mortgage is sold to a new owner or the servicer changes.
If you're facing a foreclosure and think the chain of assignments has a gap, speak to a qualified attorney who can advise you about what to do in your circumstances.
Keep in mind that any given foreclosure or legal situation has many potential claims and defenses. Talk to local counsel or a legal aid organization to explore all possible defenses that might be available in your particular circumstances.