Mortgage Modification Opinions: Legislative and Uniform Law Commission Update

In the Fall/Winter 2021 issue of Opinions Matters, I discussed a bill that was to be introduced in the 2021 session of the Virginia General Assembly to provide a “safe harbor” as to when an amendment to an existing mortgage is required if the loan documents secured by the mortgage are amended after the mortgage was executed and recorded, in order to be certain that the mortgage would continue to secure the loan as so amended and with the priority the existing mortgage would have absent amendment. With a few changes, the bill was passed and signed into law, becoming effective on July 1, 2021. One of the proposed changes to the bill related to the requirement that the existing mortgage provide that it secures the loan documents “as they may be amended, modified, supplemented or restated, or words of similar effect.” The clause “or words of similar effect” was deleted from the enacted bill, which may cause cautious lawyers to decline to issue an opinion in reliance upon the statute unless the exact wording—“as amended, modified, supplemented or restated”-- is found in the existing mortgage. The final text of the statute is set forth below.

Meanwhile, the Joint Editorial Board for Uniform Real Property Acts has recommended to the Uniform Law Commission that a study committee be appointed to consider a similar model or uniform law on the subject of modification of mortgage loans.

§ 55.1-318.1. Effect of amendment to loan document on deed of trust.

A deed of trust that has been recorded and that states that it secures indebtedness or other obligations under a loan document and that it also secures indebtedness or other obligations under such loan document as it may be amended, modified, supplemented, or restated shall secure such loan document as amended, modified, supplemented, or restated from time to time, without the necessity of recording an amendment to such deed of trust and without regard to whether any such amendment, modification, supplement, or restatement may otherwise constitute a novation of the indebtedness or other obligations under the loan document, and shall have the same priority as the priority of the original deed of trust recorded. The foregoing provision shall not apply to any amendment, modification, supplement, or restatement of such loan document if (i) the deed of trust securing such loan document conveys an interest in residential real estate containing not more than one dwelling unit or (ii) such amendment, modification, supplement, or restatement of such loan document (a) increases the aggregate amount of the principal of the indebtedness secured by the original deed of trust, (b) changes or substitutes the noteholder, lender, or agent of any lender named in the original loan document, or (c) extends the maturity date of the indebtedness or obligation secured if such maturity date was set forth in the original deed of trust, and the effect of any such amendment, modification, supplement, or restatement shall be governed by the law that would otherwise apply without regard to this section. For the purposes of this section, “loan document” includes a note, loan agreement, credit agreement, or other document evidencing a loan or other indebtedness.