WE’RE HEARING about homeowners who are “under paper” and unable to close on a home sale or refi transaction. I am speaking of homeowners who have paid off a mortgage, or maybe two or three, but a mortgage satisfaction (aka mortgage discharge, aka mortgage release) has never been recorded in the public records. The mortgage(s) that were paid off still are a paper lien in the public records. How can this be? Unfortunately it happens all the time.
I came across one of these stories this morning in the New Hampshire newspaper the Union Leader. It told of the typical plight of someone who did a refi and paid off an existing mortgage when they got a new mortgage. When they went to sell the home the prior paid off mortgage was still a lien. Can this be fixed? Sure but it takes time and will cost money in an undetermined amount.
This problem has been exacerbated by the fact that many mortgage lenders are no longer with us so the question becomes who can sign the mortgage satisfaction. It is similar to proving what lender can foreclose a mortgage. You cannot sign a mortgage satisfaction if you do not own it or have the authority to sign the satisfaction as an agent of the mortgage holder. In the great state of North Carolina there is a bill pending in the legislature (HB 332) which attempts to address this problem by providing an alternative means to signing a mortgage satisfaction.
Some states (NY and soon NC) also require that a mortgage satisfaction be recorded within a short time period after the mortgage is paid off. Again, unfortunately things go wrong. The worst case scenario is the homeowner has to lawyer up and go to court to have the paid off lien removed from the public records. Well what about title insurance you may ask?
Well, if a homeowner bought an owner’s (fee) title insurance policy when they bought the home and their seller’s mortgage was paid off at closing there should not be a problem. That title insurance company gets to fix the problem. However when a homeowner does a refinance they do not buy title insurance for themselves. Rather the homeowner typically pays only for title insurance for the lender as a condition of obtaining the new refi loan. Think of it as force placed insurance.
To complicate the situation most homeowners usually never check to make sure the mortgage satisfaction is recorded and only find out there is a problem when they sell or refi. Unless of course you are me.
Recently I had a hard time finding my mortgage satisfaction in the online public records but finally did. The lender I paid off combined several mortgage satisfactions into one document. I guess the lender was either being environmentally conscious or too cheap to pay recording fees on several mortgage satisfactions so they combined them into one document.
The pending Bill in the NC legislature also proposes that a homeowner facing this problem can get $1,000 from a lender that had been paid off and did not record a mortgage satisfaction in the time required to do so. The Bill also provides for attorney fees to be paid to the homeowner if they have to hire an attorney to fix the problem. This is not a lot of money compared to the aggravation and delays that can occur but it certainly is a start.
Based in Chelsea, Mich., John McDermott is a real estate and elder care attorney who represents both consumers and businesses. He can be emailed at email@example.com.