I just found out that when we bought our house in Spring Valley in 1995, the bank recorded our mortgage against the house across the street, not the house we bought. It appears to be a real error on the bank's part. The bank is now suing to force us to sign a corrected mortgage. It seems to me that they made a mistake and now they have to live with it. My house does not have a lien on it, correct? Do I have to sign the corrected mortgage, or should I hire a lawyer and fight this? Do I have any grounds to fight this? I know I have a note but do I have to sign a corrected mortgage? Shouldn't the bank live with its mistake just like everyone else has to live with theirs? Does the bank have a time limit?
Real Estate Attorney
Chances are that at the time you signed the mortgage documents you also signed a correction agreement which states that you will cooperate with the lender to correct any errors and that failure to cooperate would constitute a default. Assuming you signed this document then you would have to sign the new mortgage or the lender could accelerate the note and call the loan due and payable. You probably also signed an estoppel certificate which acknowledges that you knew you were placing a mortgage on the property. This would allow the lender to bring suit to impose an equitable lien on the property which is the equivalent of the mortgage. If you did not sign any papers like these then you may be able to avoid having to secure the loan with a mortgage on the property but that is highly unlikely. Bring your mortgage closing package to a real estate attorney for review to determine if you are required to correct the banks error. Either way the debt remains a valid debt and any default can result in a judgment on the note which would then attach to the house as a lien and which could force a sale of the home to satisfy the judgment. You knew you borrowed the money and you knew you were pledging the home as security so it may not be worth the effort to avoid having the loan secured as it will not help you to avoid the debt.
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Mr. Chertock's advice is sound. Most simply, a mortgage is only part of the security interest securing the Note. It is the note (a glorified, more legal) form of "IOU" which also has its own nasty creditor-oriented remedies. For instance, unlike most claims you may have for, say, personal injuries against another person, if a lawsuit is brought on a Note in the event of default, the plaintiff can just bring a summons and complaint and motion for summary judgment in one fell swoop -- no years of discovery and possibly being jerked around by defedants's lawyers or insurance carriers before a trial and "50 cents on the dollar" settlement years down the road. Plus they can layer on their OWN attorney's fees, collection costs and extra interest on the judgment, then use the judgment as a lien on your house and force a sale.
Bad idea. Brings to mind the old joke about the "golden rule" as applied to banks: they have the gold and they make the rules.
You may have the situation confused with the recent debacles with sub-prime lending where BOTH the notes and mortgages were bundled into the backing for derivative securities and then sold to investors. Remember the mortgage and note go together, they're opposite sides of the same coin. In the sub-prime collateralized situation, the problem is often that the original lender no longer holds the NOTE, and no one knows who holds the note, plus with the electronic recording system (MERS) somehow the notes and mortgages got "separated".
But in your case, if the original lender still holds the original note with your John Hancock on it, you better do what they're asking or you will be in a world of hurt.
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Real Estate Attorney
Mr. Chertock answer to your question is spot on.
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Real Estate Attorney
As implied by my colleagues, "fighting" this matter is unlikely to produce a result you would be willing to consider a "victory."
You are wise to consult a real estate attorney to review your closing package and the relief sought by the bank in the present suit. Be sure to discuss who would pay the costs of recording a corrected mortgage, and the options for settling the matter without the need for a trial on the merits.
There is a find-a-lawyer tool on this website to help you find counsel. You could also check to see if your county bar association has a lawyer referral service. If your county does not operate a lawyer referral service, check with the New York State Bar Association's lawyer referral service.
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