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If you have a borrower that has no ownership in the property that is being pledged as the collateral for the borrower’s loan, is it best to have that borrower also sign the mortgage along with the person or business pledging the collateral even though the borrower has no ownership in the property? – IBA Compliance Connection

IBA Compliance Connection

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If you have a borrower that has no ownership in the property that is being pledged as the collateral for the borrower’s loan, is it best to have that borrower also sign the mortgage along with the person or business pledging the collateral even though the borrower has no ownership in the property?

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We are not aware of any statute or regulation requiring the borrower to sign the mortgage in this situation.  Nonetheless, some lenders will require the borrower to sign the mortgage in similar situations in order to commit the borrower to certain representations, warranties and covenants that may appear in the mortgage or deed of trust but not in the other loan documentation. 

We also recommend that the mortgage grant clause reflect that the mortgage is a “hypothecation” (as well as a “mortgage”) of the mortgaged property, and that the recitals in the mortgage precisely describe the underlying arrangements and the consideration for the mortgage.

We do recommend that you consult your bank counsel to help draft the documentation for this transaction.