The seller's delivery list includes an "allonge." What is that?

Question

I'm looking at my first performing note, single family, borrower current for about four years. The seller emailed a list of what gets delivered at closing: original note, allonge, assignment of mortgage, copy of the title policy, payment history. I understand the note is the loan and the mortgage is what makes the house collateral. The allonge is the part I'm stuck on. Someone in a webinar said it's just a piece of paper stapled to the note and that the assignment is the one that actually matters because it gets recorded. If that's true, why does the allonge exist at all? And is a scan of the note good enough or do I need the paper original in my hands?

Rena Guide · Accepted Answer

An allonge is a sheet of paper attached to the note that carries the endorsement, the signature transferring the note from one holder to the next. It exists because notes only have so much room on them. After a loan has been sold two or three times there's nowhere left to sign, so each new transfer gets added on the allonge instead. It's not decoration. The chain of endorsements is how you show you're the party entitled to be paid.

The assignment of mortgage is a separate document, and it moves the security interest, the lien on the house, over to you. That one typically gets recorded in the county land records, and recording practice, fees, and what has to appear on the document differ by state, so ask the closer what your county requires and get it in writing.

So the two do different jobs. The allonge transfers the debt, the assignment transfers the claim on the collateral. You want both.

On originals: get the paper note with the original wet-ink endorsements shipped to you or to a custodian, and track it. A scan is fine for reading terms during diligence. If you ever have to enforce, some states will make you produce the original or explain in a sworn filing why you can't, and that's a lawyer's problem you don't want to buy.

One thing worth pulling before you commit: current property taxes and the hazard insurance status. A borrower paying you on time while letting the taxes go delinquent is a slow problem, because a tax lien can outrank your mortgage.

wendy_park48 · Answer

Ask him for scans of the allonge and every prior endorsement now, before you're in escrow. What you're checking is whether the chain closes. Originator to bank A, bank A to fund B, fund B to your seller, and each name has to match the one above it exactly. Entity name changes and mergers are where it breaks. Also watch for an endorsement made "in blank" with no named transferee, which is legal but means whoever physically holds the paper can claim it, so possession is the whole thing at that point.

And if any assignment in the chain was never recorded, someone has to pay to fix that gap. Usually you.

aliyah_b · Answer

Related to fathom's last line, that gap costs real money. Recording an assignment is small, maybe $30 to $80 depending on the county, but a title company or attorney preparing corrective assignments and chasing a signature from an entity that dissolved years ago is billed hourly and it isn't quick. On a note where you're putting in $40k, a few thousand of cleanup wipes out a chunk of the discount you thought you were buying.

tylerbrooks9 · Answer

Where do the originals actually live once you own them? A drawer in my house seems wrong.

The seller's delivery list includes an "allonge." What is that?

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