Dear Benny: I paid off the mortgage on my townhome years ago.
Should I have received something — the deed? — indicating that I own it? I contacted the lender last year and they said they would send me something “in a few months,” but they never did.
Can you tell me what I should do? –Doug
Also a similar question from another reader:
Dear Benny: I paid off my mortgage two years ago.
However, the only document I received from the credit union is a statement saying that the loan has been paid off. Where is the title or deed? –P.D.
Dear P.D. and Doug: Might as well respond to both of your questions.
When you get a mortgage loan, you are required to sign a whole bunch of legal documents, many of which are, in my opinion, irrelevant, unnecessary and/or duplicative.
However, there are three documents that are very important.
First, the settlement statement (called a HUD-1). In the past year, it has been amended considerably by the U.S. Department of Housing and Urban Development (HUD) and presumably is aimed at providing more complete information about the services and fees involved in a homebuying, or loan refinancing, situation.
I recommend that readers, one, review the HUD-1 very carefully before you sign it and, two, keep that document in your possession until you sell your very last house. There are expenses contained in the HUD-1 that may assist in reducing any capital gains tax you may have to pay when that home is sold.
Second, you sign a promissory note (the IOU to the lender). Once again, read it carefully before you sign that document. It contains information about the interest rate and the date on which the loan must be paid in full.
Also, if you are getting an adjustable-rate mortgage (ARM) it will explain when your interest rate will be adjusted and the formula on which the new rate will be determined. Your lender will keep the original, but you should not leave the settlement (escrow) office without getting a copy of absolutely every document you signed.
The third important document is the mortgage, called a deed of trust in many states. If you get a mortgage, typically the lender will have to go to court to foreclose should you go into default. However, with a deed of trust, you get a deed to the property and immediately deed it — in trust — to a trustee, or trustees, selected by your lender. The deed of trust gives the trustee the power to sell your house at a foreclosure sale, if you are in default. State laws differ dramatically as to how and when the trustees can proceed to a foreclosure sale.
The mortgage, or the deed of trust, is recorded among the land records in the jurisdiction where your house is located.
Now, you have paid off your loan, either because you sell the property, you refinance or you just decided to make all payments so that you have a house free and clear of that lien on your property.
If you sell your house or refinance your existing loan, the settlement (escrow) company will take on the responsibility of releasing the old mortgage from land records.
However, if you just pay off the loan and keep the house, the old mortgage (deed of trust) must be released from land records. All too often — as happened to our two readers — the lender just sends a letter advising that the loan has been paid off.
That is not sufficient: The lender should prepare a release — often called certificate of satisfaction — and that document must be recorded on the same land records where your original mortgage was recorded. You want the world to know that you now own the property free and clear of that old loan.
If your lender is a national bank, you can complain to the Office of the Comptroller of the Currency, a federal agency (occ.treas.gov). If your lender is a credit union, you can file a complaint with the National Credit Union Administration (ncua.gov). Alternatively, you should send a complaint letter to your state’s banking office and to your state’s office of attorney general.
You cannot let this sit. In my experience with clients whose loan has been paid off but not released from land records, many times the existing lender no longer exists, and it is a real hassle to find out who currently has the obligation to release that loan.
Ultimately, you may have to file a lawsuit to quiet title, but that’s time-consuming and expensive.
Incidentally, you should have received the deed when you first bought the house. The settlement (escrow) company records the deed, and when it is returned from the recorder’s office, the original should be sent to you.
Benny Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. Questions for this column can be submitted to email@example.com.