One of the best feelings in the world is making your final mortgage payment on a home. Perhaps you finally own your home free and clear after years of hard work and dedication or maybe you’ve purchased your home a year ago and just heard that interest rates on home loans have dropped significantly. In either case, your current (or “open”) home loan ends up being paid in full and the accompanying mortgage lien needs to be released. Once your final payment has been sent, it’s important to keep track of a document called a Satisfaction of Mortgage. Losing track of this document can lead to a very stressful situation when you try to sell your home and might even cause you to lose the deal or pay extra fees. The last thing you will want to hear when it comes time to sell your home is that there is an “open mortgage” that needs to be released. Most people use the word “mortgage” to refer to the home loan you took from a lender, but a mortgage is actually the recorded document that evidences the lender’s lien (or claim) against your property. Similar to judgment or tax liens, a mortgage needs to be released by way of a Satisfaction of Mortgage.
What is a Satisfaction of Mortgage?
A Satisfaction of Mortgage is document prepared by the lender that gets recorded with the County in which the property is located. This document confirms that the lien against your property is no longer effective because the debt has been paid in full. In order to avoid any confusion, the Satisfaction of Mortgage will refer to the original Mortgage document that was recorded when you purchased or refinanced the property by the amount of the loan, the description of the property as well as the book and page number of the original mortgage document. The document must also be signed by an authorized person on behalf of the lender. If the Satisfaction of Mortgage doesn’t include this information, will not successfully release the lien against your property. Typically, the lender records a Satisfaction of Mortgage and sends you a copy by mail. This isn’t always the case though. Sometimes, the lender will send you the Satisfaction of Mortgage with instructions that you need to record it yourself. It’s important to immediately find out how to get the document recorded if this is the case.
Why is a Recorded Satisfaction of Mortgage Important?
Mortgages are usually held for at least a few years before they are paid in full by the homeowner through a refinance with a new lender, making a final payment or a sale of the property. When trying to refinance an existing home loan or selling the property, the lender or homebuyer will review title to property to make sure that you are allowed to complete the transaction and that when you do, nothing or no other person or company can make a claim to the property. A claim to (or against) the property is called a lien. A mortgage is a lien against the property that a homebuyer or lender will not be ok with. If the lien is “open” and will be paid off with the proceeds from the transaction, then it’s a matter of getting a payoff and making that payment at closing. If, however, the mortgage is old and you believe that you paid it off, there should be a Satisfaction of Mortgage on record so that everyone knows that this old lender has no claim against the property anymore.
Sometimes when this happens, a homeowner can go back to the lender and have them prepare and record the missing Satisfaction of Mortgage. A problem arises when the lender is no longer in business or when the mortgage is so old that the lender doesn’t have a record of it. When these things happen, you have pull together all the information and documents you have and find the right people who can prepare the document.
Don’t think that because a lender is still in business that getting them to prepare and record the Satisfaction of Mortgage is easy. About a year ago, I represented a seller with two open mortgages, both with the same lender. The seller was adamant that one of those mortgages was in error, particularly because he had never received a mortgage statement or other request for payment. The lender, who is a large national bank, has different offices throughout the tristate area and because this loan was not active in their system, it took weeks to track down someone who was willing to work with the mystery mortgage at all. Several back and forth letters, telephone calls and arguments with the correct representatives on behalf of the seller were needed in order to finally arrange for the Satisfaction of Mortgage to be sent for recording.
What Happens with the Closing?
In the case I mentioned earlier, the closing was delayed several weeks while we worked out the issue and received the Satisfaction of Mortgage. While the homebuyers in this case were paying all cash and didn’t have to deal with a lender and rate lock extensions, that isn’t the case in most closings. When a homebuyer is paying for the house with a mortgage of their own, timing is critical and delays may become costly. A buyer who can’t close by the agreed upon closing date may grow anxious and threaten to cancel the deal.
Most sellers have a good reason for deciding to put their house on the market. The possibility of losing the deal because of a mistake from years ago can seem very unfair. Generally, the title company that is handling the closing will not want to close unless they have a Satisfaction of Mortgage in hand or evidence that it has already been recorded. In the few instances where a title company would close without the document, they would still require some form of documentation and would most likely look to hold a certain sum of money to guarantee full payment after the closing. Depending on the amount of the loan, this last requirement may render the possibility of closing without the Satisfaction of Mortgage impossible.
What Can a Homeowner Do to Avoid a Problem at Closing?
The best way to ensure that you won’t have a hold up, long delay or cancelled deal is to keep track of your mortgage documents from the beginning. When you make a final payment on your home loan (even in the case of the refinance), make it clear that you expect a Satisfaction of Mortgage to be recorded immediately and keep an eye out for mail from the lender. If you’ve made the final payment and more than 45 days have gone by, reach out to your old lender to inquire as to the status of the Satisfaction of Mortgage. Since the file is still fresh, the lender should be able to give you an answer right away.