Keys to Drafting Mortgage Purchase Agreements

Mortgage Purchase Agreements are contracts effectuating the legal transfer of ownership of a mortgage note or deed of trust from one party ("Seller") to another ("Buyer"). The mortgage must be duly recorded in the county public records and a promissory note must accompany the mortgage. The purpose of a Mortgage Purchase Agreement is for an owner to assign the mortgage to the buyer upon the terms and provisions specifically set forth.

A critical aspect of the agreement is always the section addressing the owner's warranties. In order for the buyer to feel comfortable with his or her purchase, he or she usually wants the owner to warrant that:

(a) The mortgage is a good and valid instrument and constitutes a valid lien against real property;

(b) The owner is vested with a full and absolute title to the mortgage note and has the authority to assign and transfer the note, which is free and clear of all encumbrances;

(c) The Note and Mortgage were not originated or closed in a manner that violated any federal, state, or local laws, ordinances, regulations, or rulings;

(d) There are no undisclosed agreements between mortgagor and owner which might in any way affect the obligations of the mortgagor to make timely payments;

(e) The owner has no knowledge of any valid legal defenses which would adversely affect the enforceability of the note;

(f) That the present unpaid principal balance on the note is what the owner purports it to be;

(g) That the note and any other documents are true, correct, undisputed and reflect full, correct and accurate information as to the balance and status of the loan.

(h) That the Mortgage and Note are free of usury and from any set-off, counterclaim or defense of any nature whatsoever, and that no settlement, payment or compromise has been made with respect to the Note and Mortgage and that no special promise or consideration has been made to the Mortgagor.

After the agreement lists in detail all the owner's warranties, the terms of the sale and consideration should be addressed, i.e. the purchase price. Next it is critical to include an indemnification clause. Here the owner must agree to indemnify the buyer from any and all loss, damage, liability, and expense, including reasonably attorney's fees, sustained or incurred by buyer arising out of, or based upon, the inaccuracy or breach of any warranty or representation made by the owner.

These are the key provisions of a Mortgage and Purchase Agreement. For more information or to read clauses from actual Mortgage and Purchase Agreements, be sure to check out the legal agreements section of this website.