[author: Diana Crockett]
Following the acquisition or financing of a property, most parties to the transaction are happy to circulate the “Congratulations!” missives as soon as the closing has occurred – the seller has their proceeds, the buyer/borrower has their property and/or the loan funds, and the prior financing(s) have been paid off… but the champagne corks shouldn’t be popped quite yet. There is one crucial post-closing item that too often gets overlooked and, if not addressed, can cause headaches rivaling a hangover down the line – recording the satisfaction or discharge of mortgage.
While it is the lender’s burden to prepare and arrange for the filing of the document that evidences the mortgage satisfaction (more on that below), it is the property owner who ends up feeling the pain if that fails to happen, particularly when it can’t obtain clear title when it seeks to refinance or sell the property. And in many circumstances it can be costly and time consuming, even causing delays in closing, to chase the necessary discharge documents and get them on record in order to clear title. To avoid these issues it is good practice to ensure the mortgage satisfaction is timely recorded – and, luckily, state legislatures have provided incentives for lenders to do just that…
Most states have statutes requiring lenders to record a satisfaction of mortgage, lien release, or similar filing within a specific timeframe following payoff of the loan, although in some jurisdictions that requirement may only apply to a residential mortgage. While this timeframe differs in each state, it is typically less than 90 days and a lender’s failure to comply with its obligations under the law may involve penalties. In Massachusetts, M.G.L. Chapter 183, Section 55 requires the lender to discharge the mortgage within 45 days of receipt of full payment of the loan by (i) recording an executed and acknowledged discharge and (ii) providing the closing attorney, settlement agent, or other person transmitting the payoff (typically the title company) with a copy of the discharge including the recording information – if the recording information is left out, the lender is not in compliance with the statute. Alternatively, the statute allows the lender to provide a duly executed and acknowledged discharge: (i) to the closing attorney or settlement agent to record themselves, or (ii) directly to the borrower with a transmittal letter explaining how to record the document. Failure to comply within the 45-day timeframe subjects the lender to penalties “in an amount equal to the greater of $2,500 or the actual damages sustained by the mortgagor as the result of the failure, together with reasonable attorney’s fees and costs, in addition to all other remedies available at law.”
In the event the property owner finds its title burdened either with a mortgage lien that was held by a lender that is no longer in business (because it was either acquired by another banking institution or it failed), or with a lien from long ago, both federal and state laws provide some relief. In the case of a lender that’s no longer around, the FDIC provides a couple of options. First, the FDIC can provide the owner with the contact information for the acquiring institution in order to obtain the necessary discharge from them. Or, secondly, the FDIC can directly provide the lien release on behalf of a failed bank.
If the mortgage lien is long standing, some state legislatures have provided statutory relief in clearing the lien. In Massachusetts, M.G.L. Chapter 260, Section 33 deems a mortgage unenforceable either (i) 35 years from the date of recording if no mortgage term is stated, or (ii) 5 years from the expiration of the mortgage term or maturity date stated in the mortgage, provided there has not been a recorded extension of the mortgage in either circumstance.
Regardless of the remedies available, the reality is that having to pursue a discharge of mortgage long after the payoff has occurred results in costs and delays that can often be avoided by taking the time to follow up and confirm that satisfaction gets on record at closing or soon after – now you can celebrate!