Chain of Custody

Chain of custody tracks the physical possession of original loan documents — most critically the wet-ink promissory note — from the originating lender through each subsequent holder to the current owner. While the chain of title establishes legal ownership through recorded assignments and endorsements, the chain of custody addresses a more practical question: where are the actual physical documents, and can the current holder prove they received them through a legitimate transfer?

In the secondary mortgage note market, chain of custody matters because courts may require the note holder to demonstrate not only legal ownership of the debt but also physical possession of the original note in order to enforce it through foreclosure. When a loan has changed hands multiple times — passing through originators, aggregators, servicers, and investors — gaps in the custodial record can create enforceability problems. Investors should confirm during the collateral file audit that the original documents are accounted for and that each transfer is supported by shipping records, bailee letters, or custodial receipts.