Don’t Call Me Old – I’m Ancient!
5 Tools for Tackling Unreleased Mortgages or Deeds of Trust
By Sara G. Valenz
Title searches often reflect an old – or “ancient” – mortgage or deed of trust (lien) of record that the vested owner states has already been paid. The lien itself may also happen to be a complete surprise to the vested owner. These liens may arise in a few different contexts, so what is a title pro to do?
There are several reasons why these open liens of record need to be addressed as part of an insured real estate transaction, such as a potential later claim for marketability. For example, an outstanding home equity line of credit (HELOC) lien not properly released would allow an unscrupulous borrower to max out a credit line after the property is sold. A private mortgage holder (or their heirs after their death) may call the loan due, secured by the voluntary lien – even if historically, they had not been following up on payments.
When trying to clear these mortgages or deeds of trust before closing, title professionals often encounter pushback such as:
“Why can’t I just omit it? This is from a prior owner, if they were going to foreclose or if it was an issue, we would know!”
Or maybe: “The current owner says it’s paid off, and it’s not showing on their credit report.”
Here are several practical ways to try to secure a release, which are usually guided by the facts of each distinct situation and transaction. Once you confirm that a release cannot be secured due to the age of the lien or missing parties, the following options can be considered:
1. Indemnification
Is there an existing title policy that can be relied upon for indemnification purposes? If there is an existing policy, agents and their underwriting counsel should review it for coverage under any applicable indemnity treaty. If treaty coverage is not clear, agents may want to request a letter of indemnity from the title insurer on that prior policy. Many times, indemnification is the quickest route to move ahead and get the transaction closed.
2. Statute of limitations
There are several states with helpful statutes of limitation, some of which differentiate between residential and commercial liens. For example, in New Jersey, NJSA 2A:50-56.1 limits the ability to recover on an old mortgage lien to residential mortgages only. In Virginia, customarily a deed of trust state, VA Code Sections 8.01-241 and 242 provide for varying enforcement dates based on maturity and type of deed of trust. Indiana also has a statutory expiration period under IC 32-28-4, specifying that if no foreclosure proceeding has been filed upon mortgage expiration, the mortgage will no longer be considered a lien on the real property. In Georgia, a security deed dated after 1994 expires seven years past its maturity date, and alternatively, if no maturity date is provided, seven years from either date of recording or date of document under OCGA Sec 44-14-80; subject to certain statutory exceptions. Additionally, Ohio, Illinois, Minnesota, Michigan, Massachusetts and Wisconsin all have statute of limitations relative to mortgage lien foreclosures.
3. Affidavit
Several states have a statutory vehicle allowing for the discharge of a mortgage by affidavit. In Georgia, for example, the mortgage may be canceled of record pursuant to OCGA Sec. 44-14-3(c.1) by “recording an affidavit by an attorney who has caused the secured indebtedness to be paid in full.” Under specific circumstances in Arizona, including the indebtedness secured being no greater than $1,000,000, the title company may release an old mortgage pursuant to ARS 33-707. In Florida, title agents may record a Certificate of Release based on Florida Statute 701.041, if certain requirements and qualifications are met, including:
- Payment of the mortgage;
- Mortgage secures debt of less than $500,000; and
- Mortgage is not a HELOC.
Massachusetts also allows for attorney discharge by affidavit pursuant to MGL Ch. 183 Sec. 55 (g)(1) for residential property, if the mortgage lien is not discharged within 45 days of payment. Lastly, a New Jersey title producer or attorney “who has caused payment in full to be made” may also satisfy the mortgage of record by affidavit pursuant to NJSA 46:18-11.7 when the “mortgage has not been timely canceled.”
4. Release tracking services
Agents may also employ the services of third-party vendors to track down necessary parties for a mortgage release or satisfaction. One example of such a provider is Require, (www.gorequire.com), a vendor that tracks down parties necessary for proper execution of releases on liens.
5. Affirmative coverage
When all else fails, the underwriter on your current transaction, in states where permissible, may be able to provide affirmative coverage for the old mortgage lien. This is accomplished by working with your underwriting counsel to secure approval to make exception for the old mortgage on Schedule B of the policy, and then affirmatively offering coverage against enforcement. If the mortgage is valid on its face but there is payoff documentation – such as an old letter from the lender acknowledging the loan is paid and confirming discharge will be forthcoming – this may be a good solution. Excepting with affirmative coverage avoids creating an alleged marketability claim down the road, which could be an issue if the old mortgage is simply not shown on the policy.
Different fact patterns may have different opportunities for resolution. For example, take the case of Alison, a residential homeowner selling her property after living in it for 10 years. The title examination reveals a prior owner’s mortgage, so all the options above should be reviewed, starting with the most easily accomplished: An indemnity. If Alison does not have an existing Owner’s Policy (Option 1), agents should investigate their state law regarding a statute of limitations or affidavit (Options 2 and 3) as noted above. If those options do not seem to be applicable, does a release tracking service or the affirmative coverage work to resolve the old lien (Options 4 and 5)?
As we said above, every file is different, and Doma underwriting counsel are always happy to work with our agents to investigate any and all available curative options that may apply to a specific transaction. We strive to offer the best solution in the most efficient way possible. Doma agents: Before insuring without a release of a security instrument based upon these laws, please contact [email protected] for state-specific guidance.
Don’t fear the ancient liens you may confront!
Sara G. Valenz is Vice President, Deputy Chief Underwriting Counsel for the Northeast Region of Doma Title Insurance, Inc.