August 19, 2014
Should The Mortgage Follow The Note?
The financial crisis and the foreclosure crisis have pushed many scholars to take a fresh look at all sorts of aspects of the housing finance system. John Patrick Hunt has added to this growing body of literature with a posting to SSRN, Should The Mortgage Follow The Note?. It is an interesting and important article, taking a a fresh look at the legal platitude, “the mortgage follows the note” and asking — should it?!? The abstract reads,
The law of mortgage assignment has taken center stage amidst foreclosure crisis, robosigning scandal, and controversy over the Mortgage Electronic Registration System. Yet a concept crucially important to mortgage assignment law, the idea that “the mortgage follows the note,” apparently has never been subjected to a critical analysis in a law review.
This Article makes two claims about that proposition, one positive and one normative. The positive claim is that it has been much less clear than typically assumed that the mortgage follows the note, in the sense that note transfer formalities trump mortgage transfer formalities. “The mortgage follows the note” is often described as a well-established principle of law, when in fact considerable doubt has attended the proposition at least since the middle of the last century.
The normative claim is that it is not clear that the mortgage should follow the note. The Article draws on the theoretical literature of filing and recording to show that there is a case that mortgage assignments should be subject to a filing rule and that “the mortgage follows the note,” to the extent it implies that transferee interests should be protected without filing, should be abandoned.
Whether mortgage recording should in fact be abandoned in favor of the principle “the mortgage follows the note” turns on the resolution of a number of empirical questions. This Article identifies key empirical questions that emerge from its application of principles from the theoretical literature on filing and recording to the specific case of mortgages.
The article does not answer the core question that it asks, but it certainly demonstrates that it is worth answering.
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