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Understanding the Assignment of Mortgages: What You Need To Know

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A mortgage is a legally binding agreement between a home buyer and a lender that dictates a borrower's ability to pay off a loan. Every mortgage has an interest rate, a term length, and specific fees attached to it.

Written by Attorney Todd Carney .  Updated November 26, 2021

If you’re like most people who want to purchase a home, you’ll start by going to a bank or other lender to get a mortgage loan. Though you can choose your lender, after the mortgage loan is processed, your mortgage may be transferred to a different mortgage servicer . A transfer is also called an assignment of the mortgage. 

No matter what it’s called, this change of hands may also change who you’re supposed to make your house payments to and how the foreclosure process works if you default on your loan. That’s why if you’re a homeowner, it’s important to know how this process works. This article will provide an in-depth look at what an assignment of a mortgage entails and what impact it can have on homeownership.

Assignment of Mortgage – The Basics

When your original lender transfers your mortgage account and their interests in it to a new lender, that’s called an assignment of mortgage. To do this, your lender must use an assignment of mortgage document. This document ensures the loan is legally transferred to the new owner. It’s common for mortgage lenders to sell the mortgages to other lenders. Most lenders assign the mortgages they originate to other lenders or mortgage buyers.

Home Loan Documents

When you get a loan for a home or real estate, there will usually be two mortgage documents. The first is a mortgage or, less commonly, a deed of trust . The other is a promissory note. The mortgage or deed of trust will state that the mortgaged property provides the security interest for the loan. This basically means that your home is serving as collateral for the loan. It also gives the loan servicer the right to foreclose if you don’t make your monthly payments. The promissory note provides proof of the debt and your promise to pay it.

When a lender assigns your mortgage, your interests as the mortgagor are given to another mortgagee or servicer. Mortgages and deeds of trust are usually recorded in the county recorder’s office. This office also keeps a record of any transfers. When a mortgage is transferred so is the promissory note. The note will be endorsed or signed over to the loan’s new owner. In some situations, a note will be endorsed in blank, which turns it into a bearer instrument. This means whoever holds the note is the presumed owner.

Using MERS To Track Transfers

Banks have collectively established the Mortgage Electronic Registration System , Inc. (MERS), which keeps track of who owns which loans. With MERS, lenders are no longer required to do a separate assignment every time a loan is transferred. That’s because MERS keeps track of the transfers. It’s crucial for MERS to maintain a record of assignments and endorsements because these land records can tell who actually owns the debt and has a legal right to start the foreclosure process.

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Assignment of Mortgage Requirements and Effects

The assignment of mortgage needs to include the following:

The original information regarding the mortgage. Alternatively, it can include the county recorder office’s identification numbers. 

The borrower’s name.

The mortgage loan’s original amount.

The date of the mortgage and when it was recorded.

Usually, there will also need to be a legal description of the real property the mortgage secures, but this is determined by state law and differs by state.

Notice Requirements

The original lender doesn’t need to provide notice to or get permission from the homeowner prior to assigning the mortgage. But the new lender (sometimes called the assignee) has to send the homeowner some form of notice of the loan assignment. The document will typically provide a disclaimer about who the new lender is, the lender’s contact information, and information about how to make your mortgage payment. You should make sure you have this information so you can avoid foreclosure.

Mortgage Terms

When an assignment occurs your loan is transferred, but the initial terms of your mortgage will stay the same. This means you’ll have the same interest rate, overall loan amount, monthly payment, and payment due date. If there are changes or adjustments to the escrow account, the new lender must do them under the terms of the original escrow agreement. The new lender can make some changes if you request them and the lender approves. For example, you may request your new lender to provide more payment methods.

Taxes and Insurance

If you have an escrow account and your mortgage is transferred, you may be worried about making sure your property taxes and homeowners insurance get paid. Though you can always verify the information, the original loan servicer is responsible for giving your local tax authority the new loan servicer’s address for tax billing purposes. The original lender is required to do this after the assignment is recorded. The servicer will also reach out to your property insurance company for this reason.  

If you’ve received notice that your mortgage loan has been assigned, it’s a good idea to reach out to your loan servicer and verify this information. Verifying that all your mortgage information is correct, that you know who to contact if you have questions about your mortgage, and that you know how to make payments to the new servicer will help you avoid being scammed or making payments incorrectly.

Let's Summarize…

In a mortgage assignment, your original lender or servicer transfers your mortgage account to another loan servicer. When this occurs, the original mortgagee or lender’s interests go to the next lender. Even if your mortgage gets transferred or assigned, your mortgage’s terms should remain the same. Your interest rate, loan amount, monthly payment, and payment schedule shouldn’t change. 

Your original lender isn’t required to notify you or get your permission prior to assigning your mortgage. But you should receive correspondence from the new lender after the assignment. It’s important to verify any change in assignment with your original loan servicer before you make your next mortgage payment, so you don’t fall victim to a scam.

Attorney Todd Carney

Attorney Todd Carney is a writer and graduate of Harvard Law School. While in law school, Todd worked in a clinic that helped pro-bono clients file for bankruptcy. Todd also studied several aspects of how the law impacts consumers. Todd has written over 40 articles for sites such... read more about Attorney Todd Carney

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Home > Amerinote Xchange Blog > Market Trends > Understanding Mortgage Assignment: How It Works and What You Need to Know

Understanding Mortgage Assignment: How It Works and What You Need to Know

Jennifer Park Published: July 15, 2024 | Updated: July 10, 2024

When a homebuyer gets a mortgage, they agree to pay back the money they borrowed from a lender, usually a bank. These payments are usually made over a period of many years with interest, which is how the lender makes money.  If the borrower doesn’t make payments, the mortgage gives the lender the ability to foreclose on the property to recoup their investment. 

Sometimes, though, the lender decides they don’t want to wait for those years of payments. Instead, they might choose to sell the mortgage to another company. This transfer is called a mortgage assignment, or in some states, an assignment of deed of trust. Here’s everything you should know about how mortgage assignments work.

What is an Assignment of Mortgage?

An assignment of mortgage, or assignment of deed of trust, is a process where the original lender transfers their interest in a mortgage to another party. This could be another bank, a special company that handles mortgages, or an investor interested in buying debts. The original lender sells the right to collect payments from the homebuyer to someone else. This is done with legal agreements to ensure everything is fair and follows the law.

This process is important for lenders because it allows them to get back much of the money they lent without waiting for the 20 or 30 years it might take the borrower to pay it all back. For the new owner of the mortgage, it’s a chance to invest in a steady flow of income.

Some mortgage lenders are homeowners who became mortgage note holders when they sold their house. If the prospective buyer is not able to secure a loan from a bank, these homeowners might choose to offer seller financing . In this arrangement, the seller acts as the lender, agreeing to sign over the house in return for receiving monthly payments until the value of the loan is paid off.

However, if circumstances change and the homeowner wants to receive a lump sum payment or no longer wants the responsibility of managing the loan, they might consider selling the mortgage note to an investor or a specialized company. This sale is facilitated through the mortgage assignment process, transferring all rights and responsibilities to the new owner.

The Mortgage Assignment Process

Let’s walk through what happens during a mortgage assignment:

• Decision to Sell the Mortgage: The lender decides they would like to sell the mortgage. This could be because they no longer want to bear the risk of the loan, or would like to receive a lump sum payment.
• Finding a Buyer: The lender looks for a party interested in buying your mortgage. This buyer could be another bank, a company that specializes in buying and managing mortgages, or even a group of investors. The important thing is that they have the money to buy the mortgage and are willing to take on the responsibility of collecting payments.
• Handling the Legal Paperwork: Once a buyer is found, there’s a lot of paperwork to handle. The most important piece is the “assignment of mortgage document or the “assignment of deed of trust”, a document that officially transfers the ownership of the mortgage from the old lender to the new one. This document must be signed and usually notarized, which means an official witness confirms that all parties signed willingly and correctly. There must also be a transfer of the promissory note, through a process known as mortgage endorsement .
• Notifying the Homeowner: After the mortgage is officially transferred to the new owner, the homeowner will be notified. This notification lets them know who the new owner of their mortgage is, their contact information and where to send their future mortgage payments. 

Deed of Trust vs. Mortgage

In some states, instead of a mortgage note, the lender may have something called a deed of trust. This can also be transferred to a buyer in the same way. A deed of trust and a mortgage both serve the same purpose — to secure a loan on a property. There are  some key differences in how they operate .

Deed of Trust

Involves Three Parties: A deed of trust involves three parties: the borrower, the lender and a trustee. The trustee holds the legal title to the property until the loan is fully paid off.

Non-Judicial Foreclosure: In most cases, a deed of trust allows for non-judicial foreclosure, meaning the trustee can sell the property without court involvement if the borrower defaults on the loan.

Involves Two Parties: A traditional mortgage involves just two parties: the borrower and the lender. The legal title remains with the borrower, and the lender has a lien on the property.

Judicial Foreclosure : Foreclosure under a mortgage typically requires going through the court, making it a longer and possibly more complicated process than with a deed of trust.

Legal and Regulatory Considerations

When a mortgage is assigned from one lender to another, several legal and regulatory considerations must be addressed to ensure the process is handled correctly. Each state has its own laws that affect how mortgages can be transferred, which is why it can be important to know your local rules before selling your mortgage note.

State Laws on Mortgage Assignment

State laws dictate how a mortgage assignment must be recorded and what documentation is required. For example, some states require that the assignment of the mortgage document be filed with the county where the property is located. This helps maintain a clear and public record of who owns the mortgage. Additionally, these laws ensure that the homeowner is protected and that the transfer of mortgage ownership is transparent.

Judicial vs. Non-Judicial Foreclosure Processes

Depending on the state, the foreclosure process can vary significantly. In judicial foreclosure states, the lender must go through the court system to foreclose on a home. This process can be lengthy and requires filing a lawsuit and getting a court judgment. In non-judicial foreclosure states, lenders can foreclose without court involvement if the mortgage agreement includes a power of sale clause. This clause allows the lender to sell the property to pay off the mortgage if the homeowner defaults. 

Compliance Requirements

During a mortgage assignment, all parties must comply with federal and state regulations that protect homeowners. For instance, the  Real Estate Settlement Procedures Act (RESPA) requires that borrowers be notified of any change in the ownership of their mortgage. This notification must be sent within 15 days after the mortgage has been sold or assigned. Ensuring compliance helps maintain trust and avoids legal complications.

Why Sell a Mortgage?

You might wonder why a lender would want to sell a mortgage to a mortgage note buyer instead of just waiting to collect all the payments. There are several reasons why selling the mortgage can be beneficial for the lender:

• Managing Financial Resources: By selling a mortgage, lenders can get a large amount of money upfront instead of waiting for monthly payments. This immediate influx of cash can help them invest in other areas, offer more loans, or strengthen their financial footing.
• Risk Management: Holding onto a mortgage comes with risks, especially if the homeowner has trouble making payments. By selling the mortgage, the original lender transfers this risk to the buyer of the mortgage. This can be a strategic move to manage the lender’s overall risk exposure.
• Investment Strategy: Lenders might sell mortgages as part of their investment strategy. Selling mortgages can help them diversify their investments and adjust their portfolios according to market conditions or their financial goals.

Choosing the Right Buyer For A Mortgage Note

For lenders, finding the right mortgage or deed of trust buyer is an important part of the assignment process. Here are some criteria to consider when selecting a mortgage note buyer :

• Reputation and Reliability: The reputation of the buyer is vital. Lenders should look for buyers who have a solid track record of fair dealings and reliability. A good indicator are reviews from actual buyers and a brand presence. This ensures that the mortgage will be managed properly after the assignment.
• Transparency: Transparency during the mortgage assignment process is essential for trust. Buyers who provide clear information about the terms of the purchase and who maintain open communication are preferable.
• Competitive Pricing: Finally, the price offered for the mortgage note is a critical factor. Lenders should seek buyers who offer competitive pricing, which reflects the value of the mortgage and the income it generates.

Jennifer Park

Jennifer is an expert writer who focuses primarily on writing finance, investing, and real estate topics. She has been working as a writer since 2013. See full bio.

Molly Corson

Molly Corson is the Co-Founder and Marketing Director at Amerinote Xchange. Molly's diversified background and experience lies in the areas marketing ad-tech, team-building, operations-management, sales and strategic relations management. Molly has a BA degree from Temple University. See full bio.

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Abby Shemesh

Abby is the co-founder and Chief Acquisitions Officer at Amerinote Xchange. He has been operating within the mortgage market for over a decade. Abby was featured on industry publications like Yahoo! Finance, MSN Money, Realtor.com, and GOBankingRates.com. See full bio.

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Mortgage Assignment Laws and Definition

(This may not be the same place you live)

  What is a Mortgage Assignment?

A mortgage is a legal agreement. Under this agreement, a bank or other lending institution provides a loan to an individual seeking to finance a home purchase. The lender is referred to as a creditor. The person who finances the home owes money to the bank, and is referred to as the debtor.

To make money, the bank charges interest on the loan. To ensure the debtor pays the loan, the bank takes a security interest in what the loan is financing — the home itself. If the buyer fails to pay the loan, the bank can take the property through a foreclosure proceeding.

There are two main documents involved in a mortgage agreement. The document setting the financial terms and conditions of repayment is known as the mortgage note. The bank is the owner of the note. The note is secured by the mortgage. This means if the debtor does not make payment on the note, the bank may foreclose on the home. 

The document describing the mortgaged property is called the mortgage agreement. In the mortgage agreement, the debtor agrees to make payments under the note, and agrees that if payment is not made, the bank may institute foreclosure proceedings and take the home as collateral .

An assignment of a mortgage refers to an assignment of the note and assignment of the mortgage agreement. Both the note and the mortgage can be assigned. To assign the note and mortgage is to transfer ownership of the note and mortgage. Once the note is assigned, the person to whom it is assigned, the assignee, can collect payment under the note. 

Assignment of the mortgage agreement occurs when the mortgagee (the bank or lender) transfers its rights under the agreement to another party. That party is referred to as the assignee, and receives the right to enforce the agreement’s terms against the assignor, or debtor (also called the “mortgagor”). 

What are the Requirements for Executing a Mortgage Assignment?

What are some of the benefits and drawbacks of mortgage assignments, are there any defenses to mortgage assignments, do i need to hire an attorney for help with a mortgage assignment.

For a mortgage to be validly assigned, the assignment document (the document formally assigning ownership from one person to another) must contain:

• The current assignor name.
• The name of the assignee.
• The current borrower or borrowers’ names. 
• A description of the mortgage, including date of execution of the mortgage agreement, the amount of the loan that remains, and a reference to where the mortgage was initially recorded. A mortgage is recorded in the office of a county clerk, in an index, typically bearing a volume or page number. The reference to where the mortgage was recorded should include the date of recording, volume, page number, and county of recording.
• A description of the property. The description must be a legal description that unambiguously and completely describes the boundaries of the property.

There are several types of assignments of mortgage. These include a corrective assignment of mortgage, a corporate assignment of mortgage, and a mers assignment of mortgage. A corrective assignment corrects or amends a defect or mistake in the original assignment. A corporate assignment is an assignment of the mortgage from one corporation to another. 

A mers assignment involves the Mortgage Electronic Registration System (MERS). Mortgages often designate MERS as a nominee (agent for) the lender. When the lender assigns a mortgage to MERS, MERS does not actually receive ownership of the note or mortgage agreement. Instead, MERS tracks the mortgage as the mortgage is assigned from bank to bank. 

An advantage of a mortgage assignment is that the assignment permits buyers interested in purchasing a home, to do so without having to obtain a loan from a financial institution. The buyer, through an assignment from the current homeowner, assumes the rights and responsibilities under the mortgage. 

A disadvantage of a mortgage assignment is the consequences of failing to record it. Under most state laws, an entity seeking to institute foreclosure proceedings must record the assignment before it can do so. If a mortgage is not recorded, the judge will dismiss the foreclosure proceeding. 

Failure to observe mortgage assignment procedure can be used as a defense by a homeowner in a foreclosure proceeding. Before a bank can institute a foreclosure proceeding, the bank must record the assignment of the note. The bank must also be in actual possession of the note. 

If the bank fails to “produce the note,” that is, cannot demonstrate that the note was assigned to it, the bank cannot demonstrate it owns the note. Therefore, it lacks legal standing to commence a foreclosure proceeding.

If you need help with preparing an assignment of mortgage, you should contact a mortgage lawyer . An experienced mortgage lawyer near you can assist you with preparing and recording the document.

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• The Legally Invalid Assignment Defense to Foreclosure

People who are facing the possibility of a foreclosure on their home may want to investigate the history of their mortgage. If the assignment to the foreclosing party is not valid, this may be a viable defense to a foreclosure. In some states, you can demand that the foreclosing party produce a written assignment of the mortgage. If it does not have an assignment or failed to record it as required by state law, this may result in the dismissal of the foreclosure action. Recording rules may require that the foreclosing party record the assignment before starting the foreclosure.

Courts in other states are more lenient in their review of assignments. Since the mortgage is closely associated with the promissory note, the foreclosing party may be allowed to enforce the promissory note even if it cannot produce a valid assignment of the mortgage. You should seek legal guidance in your state to determine whether this defense may be viable.

Homeowners who believe that they may have a defense based on an invalid assignment may wish to consult with a knowledgeable foreclosure lawyer, since this defense can become complicated. Justia offers a lawyer directory to simplify researching, comparing, and contacting attorneys who fit your legal needs.

The Relationship Between Mortgages and Promissory Notes

The mortgage and the promissory note are the two key documents attached to a loan for buying a home. Some purchases involve a deed of trust rather than a mortgage, but they are functionally equivalent in this context. While the promissory note is your guarantee to repay the loan, the mortgage gives the lender the right to foreclose if you do not repay the loan as arranged. The mortgage also identifies the property that will serve as security for the loan. Thus, the two documents work together in establishing the lender’s rights.

The Role of Mortgage Assignments in Loan Transfers

A bank or other lender often will sell a mortgage to another party, which will collect payments and pursue the homeowner if they fail to keep up with the mortgage. To transfer the loan, the original lender will endorse the promissory note to the new owner of the mortgage. This is because collection efforts hinge on owning the promissory note. If the foreclosing party cannot produce the promissory note, the homeowner will have a defense to the foreclosure.

Meanwhile, the new owner will record the assignment of the mortgage. This includes transferring the right to foreclose, as provided by the mortgage, to the new owner. The assignment will provide the amount of the mortgage and the names of the homeowner, the original lender, and the new owner of the mortgage. It also will contain a description of the property attached to the mortgage and the date when the mortgage took effect.

An invalid assignment defense may only be a temporary solution until the new owner records an assignment in their name.

The mortgage industry uses a tool known as the Mortgage Electronic Registration System (MERS) to keep track of assignments. MERS may be a nominee for the lender, or it may receive the mortgage as an assignment. If MERS is the current assignee, it cannot pursue a foreclosure because it does not have an interest in the promissory note. MERS simply serves as an agent for the current owner of the mortgage and assists in creating a record for transfers of the mortgage. This allows banks to more easily transfer loans among them without creating a new assignment each time. You may have a defense against a foreclosure action if MERS is listed as the owner of the mortgage. However, this likely will be only a temporary solution until the new owner records an assignment in their name.

Last reviewed October 2024

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