Purchase by Assignment
Although an assignment of a mortgage will ordinarily vest title to the mortgage in the assignee, an assignment of the mortgage to the borrower or an entity under the borrower's control could in fact effect a discharge of the mortgage. See Heller Financial v. Insurance Company of North America, 410 Mass. 400, 573 N.E.2d 8 (1991).
In Heller Financial a developer had given a first mortgage to Guaranty Bank and Trust Company and a second mortgage to Heller Financial. The mortgage to Heller Financial went into default and the mortgagee threatened to foreclose. Insurance Company of North America, which had bonded the project, was fearful that the foreclosure would interrupt the project resulting in liability under its bond. To prevent liability Insurance Company of North America deposited funds in an escrow account out of which, under an arrangement between it and the developer, the developer kept the mortgage to Heller Financial current and caused the first mortgage to Guaranty Bank and Trust Company to be purchased and assigned to the insurance company. When Heller Financial discovered the arrangement, it claimed that its mortgage was now in first position because the purchase and assignment of the mortgage to Guaranty Bank and Trust Company extinguished it. Citing Carlton v. Jackson, 121 Mass. 592 (1877), the court in Heller Financial acknowledged that when money is paid for an assignment of a mortgage by one whose duty it is to pay the mortgage in the first place, the assignment acts as a discharge or release of the mortgage. But the court noted that the money, although paid by the developer to acquire the assignment, was Insurance Company of North America's money, which it had placed in escrow. This relationship prevented the extinguishment of the mortgage, permitting the assignment to vest the mortgage in the assignee, just like in the case of a mortgagee financing a purchase, who is not under an obligation to pay the seller's mortgage, but who does without knowing of an intervening lien.