A promissory note which is secured by a mortgage or deed of trust may be transferred or assigned by endorsement on the note and delivery to the assignee. The assignment of the obligation carries with it the rights of the assignor to the security for the promissory note. In Paragraph 8 of the ALTA Loan Policies, the validity and enforceability of any assignment of the insured mortgage or deed of trust may be transferred or assigned by endorsement on the note and delivery to the assignee. The assignment of the obligation carries with it the rights of the assignor to the security for the promissory note. In Paragraph 8 of the ALTA Loan Policies, the validity and enforceability of any assignment of the insured mortgage or deed of trust shown in Schedule A, and also the failure of the assignment to vest title to the mortgage in the assignee free and clear of all liens, are automatically insured. This requires an agent to determine, among other things, that the document labeled “assignment” is in fact insurable. Furthermore, the second portion of the insuring provision which insures the assignee that the insured mortgage is “free and clear of all liens” makes it necessary to search not only the name of the mortgagor, but also the name of the mortgagee for possible prior assignments or liens which may have attached to the mortgagee’s interest in the mortgage. Although state law often does not require an assignment to be recorded in the real estate records, the records must be searched to verify that no prior assignment has been recorded. As a prerequisite to issuing insurance to an assignee, a separate assignment of the note and security instruments must be recorded. While most and the date of recording of the subsequent assignment will generally be subordinate to the assignment, state law may vary. Agents must be concerned with the effects of changing the effective date of the policy upon the standard risks of survey matters, unrecorded mechanics liens, and parties in possession. For instance, you should not bring forward the effective date regarding matters of survey or mechanics liens if construction has occurred following recordation of the mortgage, unless you are certain that such matters could not affect the validity or enforceability of the assigned mortgage or gain priority over it.
An assignment should never be insured without insuring the underlying mortgage, because, in the event the underlying mortgage was not sufficient to create a proper lien, the assignment of that mortgage would be equally ineffective. In some cases, an assignee may wish to be insured in an amount equal to the existing loan balance rather than the original mortgage amount. This is acceptable, provided 1) you receive an estoppels letter from the assignor stipulating the existing loan balance and 2) notation is made in the loan policy that the amount insured is made upon the representation by the assignor that the loan balance has been reduced from the original mortgage amount of the existing balance.