Millions of borrowers will pay off their mortgages this year. But sending in that last payment is not the end of the line. It's the beginning of the end, perhaps, but not the end itself. So don't burn those mortgage papers just yet.
For starters, call your lender about a month after you've made the final payment to make sure that you have, indeed, satisfied your debt. You may not be as current as you think.
It doesn't happen often, but sometimes a long-ago payment never reached its destination, so you're actually a month behind. Or perhaps a late charge is still outstanding for a payment you forgot to make. Or maybe your escrow account is a little short and there's not enough money for the lender to pay your taxes and insurance one last time.
After your mortgage is paid in full, the lender or the company that services your loan on behalf of the lender will prepare a document known as a "satisfaction of mortgage," to be recorded at the county courthouse.
The satisfaction "piece," as lawyers like to call it, is much like the notice that automobile lenders stamp on the auto titles they return when car loans are paid off. The only difference is that while a lender's rubber-stamp statement is proof enough for most state governments that a car lien has been satisfied, a satisfaction of mortgage is a legal document that must be recorded to be valid and actually release the lien on a property.
Without that last step, title or escrow companies will be unable to verify that a mortgage has been paid off. And if they can't do that, they won't issue a clear title when the owner tries to sell the place, whether that's now or 10 years down the road.
Fortunately, the lien release process usually goes off without a hitch. But once in a while, a release isn't filed or recorded, and a buyer's lender refuses to close. This can hold up a sale for as long as it takes to clear the air, maybe months.
In some cases, the original lender is no longer in business. In others, ownership of a loan has been transferred, sometimes so often that the trail is difficult to trace.
With this in mind, when you call your lender to make sure you've met all your obligations, ask about the procedures regarding the satisfaction document. Most states require lenders to file the release on your behalf, but a few places still allow lenders to hand off this important step to their borrowers.
Either way, the cost usually ranges from $20 to $40, according to Aurora Marsh of Rekon Technologies, a Pasadena, Calif., company that provides lenders with software to electronically create and record lien releases and other documents.
In the do-it-yourself jurisdictions, borrowers sometimes are not told how to proceed, or they simply don't read or understand the instructions. And whether the release is thrown out with that day's mail or filed away for safekeeping, the lien is still there. The loan has been paid in full, but until the release is recorded, the lien is in place.
The process of sending the original release to the county, having it recorded and getting the satisfaction back for your records normally takes 30 days. But it can take up to 60 or even 90 days in jurisdictions that do not accept releases electronically and/or are not otherwise equipped to handle the job.
Marsh says more than 700 of the nation's approximately 3,600 recording districts accept releases electronically from authorized submitters, including title companies. If the process works properly, the submitter should receive electronic confirmation within three business days that the satisfaction has been accepted or rejected.
The most common problem with lien satisfactions is that they don't conform to the recording office's requirements. Perhaps the wording is wrong, the page size is incorrect or the format is not right. Or maybe insufficient fees were submitted with the release.
Another possibility is that the lender's name is incorrect. If the entity signing the release is not the same as the one that put the lien in place, it will be rejected, says Marsh. "Lenders often fail to use the phrase 'formerly known as' when they have acquired the original lender."
If the original lender has been taken over by another institution or has gone out of business, it may become necessary to hire an attorney to create an affidavit on your behalf attesting that the loan has been paid in full to present to a judge.
Or the escrow or title company can create and sign a release when the lender is unable to do so. In California, for example, if the escrow company does not hear back from the lender after 75 days, it is allowed to create a release on its own.
Often, though, the title company has enough internal capabilities to trace your loan's lineage, from one lender to another or one servicer to another. Usually, the history can be found right away, but sometimes it can take weeks or even months.
If your lender was a now-defunct bank or savings institution, you might be able to find your loan's current owner on the Federal Deposit Insurance Corp. website (www.fdic.gov), which maintains a list of all failed banks and the investors that acquired their assets.