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#2300 - 06/12/01 10:00 PM Signatures on Notes and Mortgages
Kathleen O. Blanchard Offline

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Kathleen O. Blanchard
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When real estate title is held by a third party, another individual or an entity such as a corp. or LLC or trust - how would you handle the following:

The mortgage is written for situations where the person signing the note is one and the same as the person owning the real estate being pledged, and therefore refers to the titleholder as "borrower" and references the note signed by that person (when it was actually signed by someone else). We can fix this by having the titleholders sign the note so that our lien is okay and our lawyers are okay that we are within our rights to do that because it is "necessary to create the lien". However, for Reg B purposes, should we always limit the liability of the titleholders to their ownership interest in the real estate, even limiting liability of corporations and LLCs - or do we just have to worry about the individuals for this Reg B issue?

These are usually consumer mortgages, but sometimes they do ask that a corp or LLC, etc. borrow.

We would prefer at all costs to not have special loan documents for these third party situations. We can just add a rider to the note to limit liability.

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Kathleen O. Blanchard, CRCM "Kaybee"
HMDA/CRA Training/Consulting/Mapping
The HMDA Academy
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General Discussion
#2301 - 06/13/01 06:15 PM Re: Signatures on Notes and Mortgages
Lucy Griffin Offline

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Lucy Griffin
Joined: Nov 2000
Posts: 1,544
As a general rule, it is easier to revise a document than defend an ECOA lawsuit.

One of the principles of ECOA and Regulation B is that co-owners of the property may not be forced to sign a credit obligation for which they did not apply simply because they are co-owners of the property. Your solution to the documentation problem may walk you smack into a Regulation B violation.


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#2302 - 06/13/01 06:39 PM Re: Signatures on Notes and Mortgages
Kathleen O. Blanchard Offline

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Kathleen O. Blanchard
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I take it by your comment that we should use a rider limiting liability each and every time unless the customer specifically says "A, B and C will be the borrowers"? I have no problem with using the rider but I don't want to limit liability if the client intended for A, B and C to borrow jointly. What contributes to the problem is using a standard consumer mortgage application for these more complicated deals. Of course the customer puts his name on the line for "applicant". He is filling out the form, so he puts his name on the line. We have advised client contact staff to discuss the transaction in detail with the client to find out what they really want and to document that in the file.

The problem is that the business did not think this through when deciding upon a loan system and choosing to go with a true "consumer" type mortgage documentation system.

[This message has been edited by kblanchard (edited 06-13-2001).]

_________________________
Kathleen O. Blanchard, CRCM "Kaybee"
HMDA/CRA Training/Consulting/Mapping
The HMDA Academy
www.kaybeescomplianceinsights.com

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#2303 - 06/13/01 06:41 PM Re: Signatures on Notes and Mortgages
Kathleen O. Blanchard Offline

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Kathleen O. Blanchard
Joined: Dec 2000
Posts: 21,277
Sorry - duplicated the post!

[This message has been edited by kblanchard (edited 06-13-2001).]

_________________________
Kathleen O. Blanchard, CRCM "Kaybee"
HMDA/CRA Training/Consulting/Mapping
The HMDA Academy
www.kaybeescomplianceinsights.com

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#2304 - 06/13/01 06:47 PM Re: Signatures on Notes and Mortgages
Lucy Griffin Offline

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Lucy Griffin
Joined: Nov 2000
Posts: 1,544
This sounds like a situation that should be carefully documented. The most important thing is to have the customer's request documented -- amount, purpose, and who the borrowers are. Without this, you will face lots of questions later.

A rider could work. But this shows the limitations of form contracts and applications. Sometimes they create new problems.


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