The Weakest Link In The Chain Of Title

One thing we found after purchasing over fifty mortgage notes is that we sometimes get the chain of title missing 1-5 links in the chain! When we buy a real estate note, we always send the original collateral to our document custodian for document scrubbing of any defects or exceptions that create a break in the chain of title. Many of the notes we have purchased have breaks in the chain, and sometimes it takes hundreds of dollars to fix it.

Typically when someone buys a home using a bank loan, the bank then loans the money to purchase the home from the seller, and the bank will have you sign a promissory note so you will pay it back. They then put a lien on your home to secure it if you do not pay it back. Its usually a mortgage, or deed of trust. In some states you hold the deed, in others, the lender does.

And since the banks have the right to sell the loan, they sell the note with the mortgage/deed of trust combined. If there are any missing documents (breaks in the chain of title), our document custodian tries to find the original, or create a new one, or in some cases, an Affidavit of Lost document is required depending on what is missing.

I have seen Lost Note Affidavits, Lost Assignment Affidavits, Lost Allonge Affidavits, etc. One time we had multiple breaks erased in the chain of Assignments since the missing ones were under MERS, as was the original lender, and they were able to be skipped under the MERS umbrella.

Recently, we purchased a couple of notes from an equity fund that have been delayed because of missing documents, and while we appreciate they fix this problem before they sell it, as many don't, it makes me wonder why are they doing this now when they sell it, instead of when they first buy it?

We do it first for several reasons, the most important being, if we have to foreclose, the attorney needs to show that we have the complete chain of title, or the case will be thrown out because there is doubt you really own it. And during that time frame, anything can happen, they can file for bankruptcy, or another lien can foreclose, or they can burn it down. And when we need to sell it, we want to be able to do that quickly, and not wait weeks if not months for the missing documents.

Fixing breaks in your chain of title when you buy a note is a really good habit to get into...