Face amount, balance, and why the face is what gets counted

0:36Two different numbers

Start with the two numbers, because they're genuinely different things.

One is the principal written on the mortgage when it was recorded. The other is what the borrower owes now. And no public record connects them.

The lender knows the balance, and so does the borrower. The county clerk was never told, and is under no duty to be told. There's nowhere to put the figure if somebody volunteered it. No duty on anybody to volunteer it. And no penalty for the silence that follows. What the clerk holds is an instrument and a date.

And that is what a register is. Recording exists so a later purchaser or creditor can discover that a claim exists, and the amount on the face is part of that notice. Keeping a running balance for every mortgage in a county is a different job, and nobody asked the clerk to do it.

So which way does the error run.

On an amortizing mortgage, years of payments sit between the face and the balance, and the face is the larger number.

Now follow that through, because the chain matters. You count the face, so you overstate the debt standing ahead of your judgment. Overstate the senior debt and you understate what's reachable. Understate what's reachable, and you decline to enforce a judgment that was worth enforcing.

And that's a decision nobody ever audits. The file is closed, and the money was never counted.

So that's the error a report should make, and it should make it on purpose. A creditor acting on an optimistic estimate spends money chasing a property that can't pay. A creditor acting on a conservative one leaves some cases on the table, and is never wrong in the expensive direction.

2:22Where the face is not even a ceiling

But now here's the case I said I'd show you, where the face isn't even a ceiling.

You'd assume, comfortably, that the face is at least an upper bound. In New York that is not always true.

RPL 291 provides that an increase in the principal balance of a mortgage lien, by the addition of unpaid interest in accordance with the terms of the mortgage, retains the priority of the original lien as so increased. Provided the instrument sets out its terms of repayment.

So a mortgage that capitalizes unpaid interest can stand ahead of you for more than the number on its face. And the extra keeps the original recording date.

Only the mortgage itself tells you this. Never the index entry. So read the repayment terms before you treat the face as a worst case.

3:08What the face is good for

Okay. So what is the face good for.

A number that's wrong in a known direction is a bound. And bounds are what decisions get made against.

Subtract the face of every live senior claim from a market value, and what you have is a floor. It's the amount that would be reachable if every one of those debts were still owed in full. Nobody believes that. What matters is that the true reachable figure sits at or above the floor. So a floor that clears your judgment clears it under the most pessimistic reading of the record.

And a floor of zero says something weaker than it sounds, so be precise about it. It says the recorded senior claims, counted at face, exceed the value. It does not say the debtor has nothing.

3:53Narrowing it without a payoff letter

Now, how do you narrow it without a payoff letter.

Four things on the face of the documents move the estimate, and all four are free.

Maturity date and repayment terms give you the amortization, so a 2004, 30 year mortgage is roughly two thirds through its schedule. A recorded modification or extension restates the terms, and sometimes the amount. An assignment tells you who to ask. And in Florida, Fla. Stat. 95.281 answers the question outright where the maturity has passed by 5 years and nothing was rerecorded, because then the lien has terminated, whatever the balance was.

None of that gives you a balance. It gives you a narrower range, which is the most the public record can do. And it's why a report should print the face and the date, rather than an estimate it can't support.

Here's what I can't tell you.

How big the gap between face and balance runs. It isn't quantified here, and it would be dishonest of me to pretend otherwise.

It varies with the age of the loan and its rate, and with whether anything was capitalized along the way. A 20 year old mortgage and a 2 year old one are both counted at face by any method that reads only the register. And the first is far further from the truth than the second.

5:20What this does not cover

I'm not a lawyer and none of this is advice.

What I can tell you is narrower. The number you're reading is the number from the day of recording. On an ordinary mortgage it's too high rather than too low. And RPL 291 describes the case where it's too low instead.

Every floor worth the name is built out of face amounts for exactly this reason. If you want to watch that play out on a real stack, the piece on what a floor is worth runs the same sum twice.