Massachusetts deed

The Trilogy: Explaining the Deed, Promissory Note and Mortgage at a Massachusetts Closing

by Rich Vetstein on September 9, 2011

in Deeds, Massachusetts Real Estate Law, Mortgages

Prospective real estate buyers tend to think of the “mortgage” as the contract they are signing with the bank. This is misleading. The promissory note is the actual contract to loan and borrow money between lender and borrower. The mortgage is the lender’s instrument, or more accurately, its security interest, to enforce that loan contract. This is an important distinction because, if for example, a couple purchases property or refinances, and the loan is taken out solely in the wife’s name, then lining up the correct parties on the signing documents becomes important. But before discussing how to properly configure the closing documents, it is important to understand the definitions.

The Deed

The deed is the legal instrument conveying an ownership interest of the property to a grantee (buyer). The deed is typically drafted by the seller’s attorney. It includes the grantor (seller), the grantee (buyer), the manner in which the buyer is taking title (the tenancy), the consideration (the amount of the purchase price), a legal description of the property, and a cite to the recording information of the prior deed. Click here for an example of a Massachusetts quitclaim deed.

The Promissory Note

The promissory note is the lending contract between the borrower and the lender. The note includes the name(s) of the borrower and the property address. It also includes the amount of the loan, the term (number of years), and the interest rate. The lender generates the note and uses a FannieMae/ Freddie Mac standard template which reflects that it is a uniform instrument. A typical note includes a provision of whether the loan is fixed or adjustable, contains a “no pre-payment fee” clause, and includes language that sets the deadline for the 15th of the month for the lender to receive payment (and sets out a late fee penalty). Click here for a standard form Fannie Mae promissory note.

The Mortgage

The mortgage is the lender’s security interest in the property. In Massachusetts, a “title state,” the borrower is conveying his ownership interest in the home to the lender, such interest would be exercised only in the event of default. Thus, the lender has a lien on the property, which gives it authority to foreclose in the event of continued non-payment. The mortgage is also a uniform instrument whose template is typically generated by the lender and designed and approved by the above-referenced government housing agencies. The only unique terms in the mortgage are the names of the borrowers, the property address and the exhibit which provides a legal description of the property. The rest of the mortgage is standard, providing that the borrower agrees to keep the property insured and maintained, make it her primary residence (unless it’s an investment loan), and not to contaminate the property with hazardous waste, among other requirements. Click here for a sample Massachusetts Fannie Mae mortgage.

Thus, to return to our example, if husband and wife purchase a home and only wife is to be on the loan, then the grantees on the deed are husband and wife, reflecting their ownership interest in the property. The note will contain only the wife (since she alone is taking out the loan). The mortgage however must contain both owners of the property since this instrument tracks the deed. Thus, the husband and wife are both on the mortgage.

After the closing attorney explains the deed, mortgage and promissory note, there are a stack of other loan documents and disclosure to review. We’ve written posts about all the important ones:

Good luck with your closing!

__________________________________________

Attorney Marc E. Canner brings years of experience working closely with Buyers, Sellers, mortgage brokers, loan officers and realtors to provide expert counsel on closing residential real estate transactions. Marc is the founding partner of the Law Offices of Marc E. Canner and a founder of TitleHub Closing Services LLC.

{ 5 comments }

The Anatomy of a Massachusetts Quitclaim Deed

by Rich Vetstein on June 6, 2011

in Closings, Condominium Law, Deeds, Massachusetts Real Estate Law, Title Defects

images-10The deed is the cornerstone of property ownership in Massachusetts and throughout the country. In Massachusetts, there are three types of deeds: a quitclaim deed, a warranty deed, and a release deed. By far the most common deed used in Massachusetts is the quitclaim deed (scroll down for example below), and I’ll focus on that in this post.

Quitclaim Deed Covenants

The quitclaim deed is by far the most common and standard form of deed for Massachusetts residential real estate conveyances. Quitclaim deeds in Massachusetts are similar to “special warranty deeds” in other states. A quitclaim deed carries with it statutory quitclaim covenants by the seller as provided in Mass. Gen. Laws ch. 183, § 17: “The grantor, for himself, his heirs, executors, administrators and successors, covenants with the grantee, his heirs, successors and assigns, that the granted premises are free from all encumbrances made by the grantor, and that he will, and his heirs, executors, administrators and successors shall, warrant and defend the same to the grantee and his heirs, successors and assigns forever against the lawful claims and demands of all persons claiming by, through or under the grantor, but against none other”.

Taking Title

How would you like to take title? This is an important question that buyers must consider. For single individuals, there really is no choice. You take title individually. For married couples, there are three choices: (1) tenancy by the entirety, (2) joint tenants with rights of survivorship, or (3) tenants in common.

Tenancy by the Entirety

This is often the best choice for married couples, and only husband and wife can benefit from this type of ownership. In a tenancy by the entirety form of ownership, if one spouse dies, the surviving spouse succeeds to full ownership of the property, by-passing probate. By law, tenants by the entirety share equally in the control, management and rights to receive income from the property. Property cannot be “partitioned” or split in a tenancy by the entirety. A tenancy by the entirety also provides some creditor protection in case one spouse gets into financial distress as creditors cannot lien the non-debtor spouse’s interest in the property. In the example, below you can see how the Obamas take title as tenants by the entirety.

Joint Tenants

Like tenants by the entirety, a joint tenancy with rights of survivorship provide that the surviving spouse or joint tenant automatically succeeds to ownership, by-passing probate. You don’t have to be married to create a joint tenancy. These are common when siblings share property or as between elderly parents and their children. Unlike a tenancy by the entirety, joint tenants can “partition” or split ownership of the property through a court process.

Tenants in Common

The least used type of ownership, in a tenancy in common, there is no right of survivorship. So when a tenant in common passes, their interest goes to their surviving heirs and the property must be probated for further sale or mortgage. Most folks want to avoid probate like the plague. Like a joint tenancy, a tenancy in common can be split or “partitioned” by court order.

Purchase Price

All deeds must recite the consideration or purchase price paid. So if you are looking to hide the amount you paid for your home, forget about it. The purchase price is also used to calculate deed/transfer taxes due the seller which is $4.56 per $1,000. For more info about deed/transfer taxes read I Have To Pay Tax On Selling My Home?!

Legal Description

Every deed must adequately describe the property conveyed. In the diagram below, you can see the formal legal description called a “metes and bounds” description. This will often reference a plan of the land recorded with the registry of deeds or reference markers on the property such as stone walls, surveyor points, etc. The deed may also recite easements, restrictions, covenants or takings on the property. It will also recite the last prior deed to track ownership.

Drafting, Fees, Notaries, Etc.

In Massachusetts, local practice is for the seller’s attorney to draft the deed. The registry of deeds charges a fee of $125 to record the deed which the buyer pays. All deeds must be notarized by a notary public who must verify the sellers’ identification through a state issued driver’s license or acceptable form of identification. The notary must also confirm that the sellers are signing the deed voluntarily by their own free act and will. Once the closing is finished, the closing attorney will courier the deed to the registry of deeds, perform a final title run-down, and record the deed, mortgage and other documents. The sale is then official!

{ 5 comments }