You put your house on the market and you find a buyer right away who offered you not only your asking price but also was willing to pay in cash with no contingencies. Everything is going perfectly! But then it all comes crashing down.
The title company calls to let you know the title is not clear because there is an unreleased lien from 1997. They ask you for proof of payoff and release. You panic. Who keeps paperwork from that long ago? And what is an unreleased lien?
The unexpected unreleased mortgage lien rears its ugly head all too often, according to those of us charged with shepherding consumers through the last stages of home buying.
This situation usually occurs when homeowners paid off their mortgage and continued to live in their homes without obtaining proof that the loan was paid in full. It is not until they try to sell or refinance that they discover they have an unreleased mortgage lien. By then the bank that originated the loan most likely has been absorbed by several bigger banks. It’s still possible to release the mortgage lien but it’s going to take a lot of work. And if you are the heir of the homeowner, it is going to be even more of a hassle.
The unreleased mortgage lien can appear in all kinds of conditions, regardless of the property or loan type. And when it does, it often means settlement delays. You can avoid the aggravation of an unreleased lien by understanding what a lien is and how to make sure you take care of it properly.
What is a lien?
A lien is a legal claim against property that must be satisfied when the property is sold. The lien provides notice that the bank has a secured interest in the property and guarantees the bank that the property cannot be sold or transferred without either the loan being repaid or assumed.
What is an unreleased lien?
An unreleased lien is a cloud on title that prevents property from being conveyed. Even though a mortgage has been paid off, the lien is still a valid cloud on title until it is released.
So how does a lien get released?
When a bank loan is paid off, a Release of Lien or Certificate of Satisfaction is provided by the bank and is recorded in the Land Records office to provide notice that the prior lien has now been paid in full and released from the property.
When I refinance, what is the lien release process?
In a refinance, the title company handles paying off the bank and is responsible for following up to make sure that the lien has been released. Most title companies charge either a lien release fee, or include the fee as part of the settlement fee.
What about when I sell my house?
The same thing is true when a property is being sold. The title company is responsible for handling the release since it has provided a commitment to the bank that the prior loan will be paid and released.
I just paid off my mortgage. Do I need to do anything else?
Yes, you need to make sure that the lien has been released. Either the lender will send the release to the county or city Land Records office on your behalf and forward you the recorded release, or they will send you the unrecorded release, which you will then have to record.
I inherited my parents’ house. When I tried to sell it, I was told there was an unreleased mortgage lien. What should I do?
Obtain proof that the loan was paid off, then call the last known servicer of the loan in order to request a release. This can become tricky if the loan was paid off a long time ago, since the loan servicer at the time of payoff might have been merged into several other banks, but eventually, you should be able to determine who took over the records and can provide a release.
I have an Equity Line with a zero balance. Does that need to be released?
Just because your equity line has a zero balance does not mean that it has been released from the property. You need to request for the account to be closed and for a release to be sent to you, which you then will need to record at Land Records.