When a mortgage is created, the lender, borrower and the escrow company involved often create documents that make it clear who holds the title for the property and why they hold it. This often comes down to various levels of interest in the property. The borrower holds interest as the purchaser, but the lender holds interest in the property because it was used as collateral, and so forth. In order to manage these different levels of interest, the laws regarding real estate make use of terms like "successor in interest."
Mortgage Deed
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A mortgage deed is simply the trust deed that is used to hold the title of the property. This trust deed is typically managed by the escrow company involved, although in some states lenders tend to hold the titles themselves until the mortgage is repaid. If something goes wrong with the mortgage, the escrow company can use the deed to swiftly resolve the issue and may sell the house through a rapid foreclosure. If the mortgage is fully paid off, the escrow company has the ability to ascertain payment and grant the title fully to the borrower.
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Successor in Interest
A successor in interest is simply a party that is not the original borrower that took out the loan, but a similar entity that has taken on all the related obligations. The successor in interest has taken the place of the original borrower, and now the language of the deed applies to the successor. This allows the title for the property to be moved to the successor in interest, but it also leaves room for the debt obligation and consequences like foreclosure to be used, even though the original borrower is no longer active.
Examples
Successor in interest can be used as both a business and individual term, but it is more common in the business world, where mergers and acquisitions can occur often. The business that acquires a company that has mortgage debt becomes the successor in interest and must now pay off the loan itself. Individuals can also be successors in interest, but this usually occurs only when an heir receives property and assumes the mortgage.
State Laws
The term successor in interest is found in many different state laws. The ways in which it is used can differ slightly from regulation to regulation, but in general the purpose remains the same. When a state makes a law, or when a company creates a mortgage deed, it wants to cover all its bases. This includes making sure that even if the original borrower dies or is replaced, the regulations still apply. For this reason, "or successor in interest" is often tagged on requirements for the current borrower.