Note Assignment

[Account Closed]

If sell a note to somebody, does the lenders title policy and hazard insurance have to be changed to cover the new note holder, or does the coverage somehow automatically transfer to the assignee?

[Dion DePaoli]

For clarity sake. Mortgages and Deeds of Trust change ownership in the exact same manner. It is also important to notate what is being implied here is the conveyance of BOTH the security instrument (DOT/Mortgage) and the Note.

The security instrument is conveyed by way of an Assignment of Mortgage/DOT. Recording is not essential to perfect ownership but is now pretty common since 2007.

The note is conveyed by way of an Allonge. An allonge is an endorsement. The general rules of endorsing note are function of UCC regulation see § 1303.25. (UCC 3-205). For the most part, standard allonge will include a line stating "Pay to the Order of" and include the new note owner's name. Allonges are not recorded. Because of this, entire chains of Allonges should be included with the file. The allonge chain and the assignment chain should mirror each other.

When a mortgage/dot is purchased all rights, claims and interests come with it. So the note does follow the security instrument but the income can still be endorsed to a different entity.

Title insurance does not insure the specific "Lender" or mortgagee. It insures the instrument and its place in the chain of title. There is usually no updating any title insurance policy when the asset is purchased. The Final Title Policy will be included (should be) in the paperwork when it is purchased. The Final Title Policy will contain the title jacket and the schedules. If a claim is needed to be filed, you would prove ownership of the security instrument by way of Assignment Chain and perhaps contract if requested. As stated above, Title Insurance insures backwards in time. Once title to the property is insured, it is insured. That insurance is valid until title changes hands in the future. The terms of the insurance or any exceptions to coverage are contained within the Title Policy.

Since title insurance insures against claims on title which predate the policy, it would be a waste of money to update it. Although, you can update it. There is no real need. When you purchase a mortgage or deed of trust, that security instrument prevails over all subsequent actions on title with exceptions for government liens and taxes (and a couple other items). If the security instrument is not satisfied title is clouded for the subsequent event and what ever it may be subject to the superior claim and rights the mortgage has on title and to the real property. In other words, if the property has a mortgage and the property is sold to another person without the mortgage being satisfied, the sale can be nullified since the mortgage is superior to the sale.

Typically when you purchase a mortgage/dot you will check title but that is mainly to look at future title events post the recording of the mortgage.

Hazard Insurance or alike (flood, wind, etc) is updated to reflect the new mortgagee or the owner of the asset. This is simply done by contacting the Insurance Company and supplying them with an updated mortgagee clause from the new note owner. The insurance company will change the beneficiary line and send out a new Insurance Declaration page reflecting the changes.

The hazard insurances or alike does not "add" to a list of beneficiaries. There are only set number of beneficiaries. Typically the borrower and lender. Each lender for each separate lien is listed as a beneficiary to claim. The list is amended so one mortgagee clause per instrument not a list of past mortgagees since when the instrument sold all rights and interest and claims to said instrument were conveyed as a function of sale.

Since hazard insurances lapses every year a lender must continually get updated declaration pages to ensure coverage. In the event coverage lapses the lender has a right, through the language in the security instrument and note, to force place insurance on the property at the borrower's expense.

When a borrower has impounds or escrow set up with the mortgage servicer this is all pretty simple. When the borrower does not have impounds setup the servicer must chase it down.

Hope that clears it all up for you.