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Underwriters' Bulletin

Claims Corner

Mortgages

Omitted Mortgagor - Whoever Owns Property Must Unconditionally Execute the Mortgage
Originally published in the September 2008 ATG Casenotes and Underwriters' Bulletin

As the number of foreclosures has increased, the number of claims that ATG has received because there is an omitted mortgagor has also increased. Claims due to omitted mortgagors are preventable.

ATG is usually notified of these claims when the mortgagee is starting foreclosure proceedings. The claim is made when all of the grantees on the deed did not execute the mortgage. If all of the owners have not executed the mortgage, the lender does not have a valid lien on the entire property. In addition, when the grantees take title as tenants by the entirety and only one of the spouses has executed the mortgage, the mortgage is void as a lien against the property.

As an issuing agent, you are responsible for examining the mortgage at the time of the closing to make sure that the mortgage is insurable even when you are representing the seller. The problem often arises at the closing when an additional grantee is added to the deed without changing the mortgage. It also arises when the lender qualifies only one of the titleholders for the loan and as a result prepares the note and mortgage with only that titleholder as signatory. It is alright for the note to be executed by less than all of the titleholders, but the mortgage must be executed by all of the titleholders.

ATG members and their closers are responsible for making sure that any mortgage ATG insures is signed by all of the owners of the property. If the lender or the buyers wish to have a buyer removed from the mortgage, that buyer must also be removed from the deed. If the buyers wish to add a new party to the deed as a grantee, that party must also be added to the mortgage as a mortgagor. It is not a problem to have more people on the mortgage than are on the deed.

The following are examples of common scenarios you might encounter:

The execution of the mortgage must not be limited to a waiver of homestead. In order to prevent these claims in future please remember that whoever owns the property must also unconditionally execute the mortgage. If you have any questions, contact the ATG Underwriting Department,legal@atgf.com, 217.403.0020, or 312.752.1990.

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[Last update: 3-26-10]