Lien and title theory, promissory notes, and mortgages

Two documents, two jobs

A promissory note is the borrower's written promise to repay a debt. It states the loan's repayment terms, such as principal, interest, installments, and maturity. The maker signs the promise; the payee is the party to whom payment is promised. A mortgage pledges an interest in real property as security for the obligation. The borrower giving that security is the mortgagor; the lender receiving it is the mortgagee. The note evidences the debt; the mortgage secures it. A note can exist without a mortgage, but that note alone does not create a mortgage lien.

Lien theory versus title theory

Florida is a lien-theory state: the borrower retains legal title, and the mortgage gives the lender a lien rather than ownership. Signing a mortgage does not convey the house to the lender. In the traditional title-theory model, legal title is conveyed to the lender as security while the borrower retains equitable title. Do not confuse a lender's security title with unrestricted ownership. The governing law and documents determine particular remedies.

Imagine Elena borrows money from a bank to buy a Florida home. Her note promises repayment. Her mortgage gives the bank security in the home. Elena remains the title owner. Default does not itself transfer ownership to the bank; Florida mortgage foreclosure proceeds through court. For covered residential foreclosure complaints, Florida requires allegations identifying the plaintiff as holder of the original note or specifically explaining its entitlement to enforce the note. A delegated plaintiff must describe its authority. This connects enforcement of the security to enforcement of the obligation.

Follow the loan through payoff

An assignment transfers a lender's interest; it is not a satisfaction of the borrower's debt. An estoppel letter supplies payoff information, including the unpaid balance and applicable daily interest. Under Florida law, within 60 days after full payment or payment pursuant to the statutory estoppel letter, whichever occurs earlier, the mortgagee or servicer must execute an acknowledged or proven release, send it for recording, and send the recorded release to the mortgagor or record owner. Recording a release does not itself discharge any remaining personal loan liability. Distinguish payment of the debt from removal of the property lien.

For an exam question, ask three things: Who promised to pay? What property secures that promise? Who holds title under the applicable theory?