Many people take out loans to purchase a home and do not truly understand the difference between a mortgage and a promissory note. The mortgage is a legal document that ties or "secures" a piece of real estate to an obligation to repay money. The mortgage itself does not obligate anyone to repay money. If a person's name is on the mortgage to a piece of property, then that person may not be required to repay the loan. The mortgage does not create personal liability. We determine who is obligated to repay the loan by looking at the promissory note.
A promissory note is a document between the lender and the borrower. It is a separate contract from the mortgage. Only those who sign the promissory note are required to repay the money lent under the promissory note. If a married couple takes out a loan in the husband's name, then most lenders will require that the wife be named in the mortgage. So long as only the husband signs the promissory note, the wife has no personal obligation to repay the loan. This is a critical distinction and is often misunderstood. The less people on the promissory note is almost always better for the borrowing side of the transaction.
Creditors (Banks) will typically want as many people on the note as possible to allow them more people or entities to go after if there ever were a default in the future. The individual or individuals who signed the promissory note are personally liable for the money that was borrowed and can be sued personally and have their assets seized, credit report negatively impacted and their wages garnished of lack of payment. Those who signed the mortgage only and not the promissory note are immune from asset seizure, credit report impairment and wage garnishment.
If you are in a similar situation and could use some help, contact us today online or by telephone at (312) 313-1613 to speak with an experienced Chicago bankruptcy attorney.