Most buyers of real estate finance their purchase through a mortgage. When a buyer mortgages a property, the lender will record the mortgage note with the local recording office. The recorded note provides notice to the world that the property is encumbered by a mortgage.
When the loan is paid off, the lender will give the borrower a document called a mortgage satisfaction. A satisfaction is the borrower’s proof that the property is released from the mortgage. The borrower can then sell the property free and clear of the mortgage.
How can a fully-paid mortgage cost an investor time and money?
Lenders have always provided mortgage satisfactions after a loan is fully paid. However, it was not until the last decade or so that lenders would also record the satisfaction with the recording office. Although the borrower received the satisfaction, the satisfaction was not made known to the world if the borrower did not record it.
Borrowers who did not record on their own unwittingly created legal troubles years later. If the borrower lost the satisfaction and the lender became defunct or merged, it may not be possible to request a new satisfaction. The borrower usually becomes aware of the problem when attempting to sell. The title company for the prospective buyer will discover that the mortgage remains unsatisfied. As far as potential buyers are concerned, the borrower still owes the full amount of the mortgage.
Unsatisfied mortgages can create several problems for sellers or for investors seeking to acquire a property including:
- delay of the sale
- delay of the investor’s proposed use of the property
- complications in negotiations between the investor and seller
- placement of the seller’s proceeds into escrow until the problem is resolved
How can the delay be resolved and money released from escrow?
The legal problems can be eliminated by obtaining a new satisfaction of mortgage. A lawsuit called a Quiet Title action is required to obtain the satisfaction, especially when dealing with a defunct lender. The seller benefits when the case is resolved because the proceeds will be released to the seller. The property may also be sold if the mortgage satisfaction caused a delay in sale.
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