Episode 36: Chain of Title and Assignments

Most note investors focus on the numbers — but if the paperwork behind the loan is broken, the numbers don't matter. In this episode, we break down the two documents that transfer every mortgage note and why verifying the chain of title before you close is one of the most important things you can do as an investor.

🔍 What you'll learn:

✅ The difference between the note and the mortgage — and why each one transfers in a completely different way

✅ What the chain of title is and why a single gap in that chain can threaten your ability to enforce the lien

✅ The four documents every collateral file needs — and the one that must be an original with wet ink signatures

✅ What successor by merger means and why it is not always a red flag when entity names don't match

✅ Why recording your assignment in the right county after closing is the step that puts you on title and protects your position

This program is for informational purposes only and should be independently verified before taking action.

Transcript

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Welcome to the show, where you'll learn how to invest in mortgage notes, the savvy real estate investor's secret weapon to create cash flow without tenants and property acquisitions for pennies on the dollar. My name is Robert Heitha, founder of Fix Notes, and my mission is to make note investing ethical, profitable, and accessible for you. In every episode, we're democratizing the industry to put these powerful Wall Street assets into the hands of mainstream investors like you. So without further ado, let's get into the show where you're in good hands with my AI clone. Let's go. This program is for informational purposes only and should be independently verified before taking action. Every mortgage note has two components that travel together from the day a loan is originated to the day it is paid off. There is the note, the borrower's written promise to repay the debt, and there is the mortgage, also called the security instrument or deed of trust, depending on the state. The note creates the obligation. The mortgage connects that obligation to the property. So when you buy a loan in the secondary market, you need both of those documents to transfer to you properly. Understanding how that transfer works and what can go wrong is what this episode is about. The mortgage transfers through a document called an assignment of mortgage. Every time a loan changes hands, an assignment is recorded in the county public records where the property is located. That recorded history of assignments is the chain of title. When you buy a loan that has moved through multiple owners, from the original bank to a trust, to a hedge fund, to the investor you are buying from, each of those transfers should have a recorded assignment in the county records. If any link in that chain is missing or broken, you have what is called a gap in the chain of title. And that gap can create real problems when it comes time to enforce your lien. The note transfers differently. The note is a physical document with original wet ink signatures, and it transfers through a separate document called an allonge, which is essentially an endorsement. Think of it like signing the back of a check over to someone else. The allange says pay to the order of the new owner without recourse from the previous owner. The allange does not get recorded in the county records. It lives with the original note in what is called the collateral file. But here is the important part. The allange chain and the assignment chain need to match. Every entity that is shown in the recorded assignment chain should also appear in the endorsement chain on the note. If they do not match, you have a documentation problem that needs to be resolved. When you receive a collateral file after purchasing a loan, your job is to audit all four key documents. The first is the note itself, which must be an original with wet ink signatures, not a photocopy. If the original note is missing, you need a lost note affidavit from the seller, which is a sworn statement that the note existed and was lost. That document does not eliminate the debt, but it is the next best option. The second is the allonge, which should be physically stapled to or affixed to the note. If you unstaple it to scan it, you need to put it back. An allonge that is separated from the note can create legal complications you do not want to deal with. The third is the mortgage, which because it is a publicly recorded document, does not require the original. A certified copy is acceptable since the county has already acknowledged its existence in the public record. The fourth is the assignment of mortgage, which should show a complete recorded chain from the originator all the way to the person you bought the loan from, and ultimately to you. One thing that catches new investors off guard is successor by merger language. In the years following the financial crisis, a lot of banks were acquired by other banks. If a loan originated with National City Bank and you see PNC Bank in the chain, that is not necessarily a gap. PNC acquired National City. You will see these kinds of mergers throughout the assignment histories of loans that have been in the secondary market for any length of time. After you close on a loan, your assignment needs to be recorded in the county where the property is located, not where your company is based. Once that assignment is on the public record, any title company or attorney researching that property will see that you are a lien holder and that you need to be paid off before ownership of the property can transfer. That is your protection. It's sida without it, things can slip through. If you do find a gap in the chain, the fix is usually a corrective assignment. This is a new document prepared to fill in the missing transfer and recorded to complete the chain. It is generally not a deal breaker, but it is much easier to get corrective documents from a seller before the deal closes than to track them down afterward. Next time we are going to look at title reports and exceptions, what a title search actually tells you, and what to do when it surfaces something you did not expect. Thanks for sticking around to the end, and thank you to my trusty Robot and the Fixed Notes team for putting together another episode. If you want to learn more and hang out with the real not AI version of me, join our free school community at school.com slash fixed notes. That's s k-o-l.com slash f I X N O T E S. In the meantime, we'll see you in the next episode.