Note and the Mortgage: What Follows What?

A basic concept in law is that “The mortgage follows the note”. This was pronounced by the Supreme Court of the United States in 1872 in Carpenter v. Longan, 83 US. 271, 274 as follow:

“…the note and mortgage are inseparable…, the assignment of the note carries the mortgage with it, while an assignment of the latter alone is a nullity”.

What does this mean? Referring back to Part 3, when we explained that “mortgage” is really a verb meaning “to pledge”, this doctrine is simply stating that the pledge of property lives only as long as the underlying debt is not paid. Once that debt is paid, the pledge of the property, by its very nature, comes to an end. The mortgage exists only to serve the note. And so any new owner of the note, by force, is also the beneficiary of the pledge of the property. There would be no point in pledging the property to a person or entity that did not own the underlying debt. To sum up: a transfer of the note, carries with it a transfer of the mortgage, i.e. the mortgage follows the note.

That’s the theory. But what is the reality? In the real world, only ownership of the mortgage is recorded in the public records. Why? Because the public record is interested in transparency as to the parties of interest in the land; there’s no public need for publicizing ownership of the debt. So the reality is that everyone knows who owns the “mortgage” – the pledge of the land; but there is no public database as to ownership of the underlying debt.

When a note is sold by one party to another, it is publicized not by an “Assignment of the Note”, but by an “Assignment of the Mortgage”. Of course, the language of the assignment must somehow relate that the underlying note has been transferred. But the instrument relating that fact to the public is an assignment of the security interest in the property. The whole reason for public records is to give public notice as to all parties that have an interest in real property.

Why should ownership of land be public as opposed to ownership of debt? Without this transparency, the purchase and mortgage of real property would be impossible. Who would buy land, or lend money against that land, without knowing the chain of title as to possession, liens and encumbrances?

It is time to reformulate the Supreme Court’s doctrine in order to reflect the current economic reality which demands transparency as to ownership of real property, and not transparency as to ownership of debt instruments, as follows:


The mortgage follows the note – in Equity.
The note follows the mortgage – in Title.

What does this mean? On one hand,the beneficial owner of the debt (the note) must simultaneously be the beneficiary of the pledge of the property (the mortgage). The note and mortgage are an organic whole and cannot be separated. The owner of one is always the owner of both. But in terms of the public record, in terms of tracing ownership of that note and mortgage, the chain of title is reflected in the chain of title holders of the mortgage; since it is the mortgage and its assignments that are recorded in the public record. The very term “chain of title” gives witness to the fact that the public record is concerned with ownership-in-title.

Many critics of MERS claim that MERS “bifurcates” the note and mortgage. This is nonsense since by definition, ownership of the note cannot be separated from ownership of the security pledge. They are one organic whole. The owner of one is the owner of the other. What is causing this legal illusion? The cause is the seeming separation of the note from the mortgage document. Since the lender owns the note, and the mortgage documents is owned-in-title by MERS, it appears that they have been separated. They have not. All that has happened, as has been explained in this tutorial, is a separation of title and equity of the combined note/mortage.

There is one serious problem that needs to be addressed. When a note is sold from one lender to another, that first lender is supposed to inform MERS of the transfer. After all MERS is supposed to keep track of all beneficial owners, custodians and servicing parties. Many time MERS has not been kept up to date. This leads to MERS acting as plaintiff in foreclosure actions for parties that no longer own the note! The courts have dismissed such suits since the plaintiff must own, at least in-title, the note. But dismissing such cases is not enough. Such sloppiness is unacceptable. There is a need for real time information as to who owns what.

I would propose that the bearer-note be abolished. In the modern economy, given all of the computer and electronic infrastructure available, bearer instruments are no longer necessary. The stock certificate has long passed from the scene. Bearer bonds were abolished back in 1982. There no longer is a need for bearer notes. The terms of the note should be memorialized electronically. And there should be an electronic database of all notes which are secured by real property. Whether that electronic database should be handled by MERS, which is a private organization, or the U.S. Government, or a consortium of electronic registration systems, is a not within the purview of this Tutorial. But it is clear that the physical note is causing more problems than its worth.