Following a recent blog describing Notes and Mortgages, we continue with the real estate theme to better understand the concept of Equity. Most simply, equity is the difference between the value of real estate and the remaining debt. If the real estate value is $500,000 and $200,000 is still owed on the Note, the calculation results in $300,000 of equity. However, this concept gets more complicated.

First, the value of real estate is subjective. Two appraisers are unlikely to agree on the value of real estate and can differ widely depending on the comparable sales they each choose, the adjustments each makes on the property appraised, and the timing. Appraising real estate is an art, not a science. It leaves room for wide discretion. Since the value of the real estate is the first part of the equity calculation, it is important to understand that if the value is uncertain, the amount of equity will also be uncertain.

The second part of the equity calculation is to identify the balance due on the Note. This amount is often available on the (misnamed) monthly Mortgage Statement as the “principal balance”. This amount changes monthly as it credits the amount of principal paid each month. To be precise, the best way to determine the exact amount required to extinguish the debt on the Note is to contact the lender and request a “payoff letter”, which often contains charges exceeding the amount on the monthly Mortgage Statement.

In a divorce, the marital home is often the largest asset. Determining the equity in that real estate requires the calculation above, but minds (and attorneys) will differ in this regard, so here are some important tips:

1) Understand that the equity number is just a guess and do not treat it like cash in your pocket.
2) The equity calculation is based on a value that is likely to change up or down with the market, season and interest rates. It is not static.
3) If, after determining the equity, you choose to keep the house when dividing marital assets, remember that it comes with enormous liabilities such as the monthly payment of principal and interest, real estate taxes, insurance, maintenance, repairs, excess utilities, etc.
4) Keeping the real estate in a divorce also means that you alone will be responsible for the substantial costs of sale when you are ready to sell. Those include the broker’s commission (usually 5% of the sale price), deed stamps (also calculated on the sale price), recording fees, and possibly some repairs to satisfy the buyers after inspection.
5) Consider renting after a divorce instead of keeping the house as it makes the landlord responsible for maintenance, repair, snow removal and lawn care. Renting can simplify your life and cash flow while you transition.
6) Do not let your emotional attachment to the house drive this decision. It should be governed by a careful financial analysis, not emotion.

For more on valuable lessons for divorcing, please read our regular blog updates or call.

Hindell S. Grossman, Esq.
Grossman & Associates, Ltd.
(617) 969-0069


The word “Mortgage” is commonly misused to mean the amount borrowed, and owed on real estate. Mortgages, however, are only part of the equation when accurately referring to debt on real estate and the resulting calculation of equity. The Note and Mortgage are two separate documents. The Note is the IOU to the lender, usually a bank, which states who borrowed the money, how much was borrowed and the terms of repayment (including the interest rate, late charges and what happens if the IOU isn’t paid on time.) The Note is signed by the borrowers and kept by the lender. Notes are sometimes transferred to other lenders in exchange for cash or credit, as they are assets that can be sold. Notes are private documents that they are not recorded at the Registry of Deeds. Once the IOU is repaid, the original signed Note should be returned to you marked “PAID” to confirm that the debt is no longer outstanding and to prevent anyone from seeking repayment from you. Notes can be used to evidence any loan, not just ones related to real estate.

The Mortgage is a separate notarized document that lenders require simultaneously with the Note to provide security for repayment of the Note. Security means leverage in the event that the borrower fails to pay the Note; it allows the lender to collect the unpaid amount by selling the real estate and keeping enough of the sale proceeds to repay the balance owed. Mortgages are public documents specific to real estate and are recorded at the Registry of Deeds so that anyone can see whether there is a lien on any identified parcel of real estate. The Mortgage describes the lender’s right to foreclose on your real estate if you fail to pay the amount due.

When you borrow money to purchase real estate the lender requires that you sign a Note, which evidences the loan, and a Mortgage showing the lien on the property. When you sell the real estate the funds from the sale are used to pay off the remaining amount due on the Note, and the Mortgage is discharged, which means that a document generated by the lender states that the obligation has been repaid and the Mortgage which secured its payment is released. Mortgage Discharges are recorded at the same Registry of Deeds as the Mortgage, and serve to cancel, or discharge, the Mortgage, eliminating the lien.

To be precise, we should say: “Did you pay the Note this month?”, “How much is left on the Note”, and “Let’s refinance the Note”, but language has a way of becoming imprecise, so most use the word Mortgage instead. Whatever!

Please look for future blogs on defining equity in real estate and other interesting topics.

Hindell S. Grossman, Esq.
Grossman & Associates, Ltd.
(617) 969-0069