Perhaps you've heard the phrase "the bank owns it" in context of a house purchased with a mortgage loan. Although the buyer owns the home, the mortgage lender holds an interest in the property until the loan is paid in full. This is because the home itself acts as collateral to secure the loan in case the buyers default on the loan. After the loan is paid in full, the lender will issue a release of mortgage document. This removes the lender's interest in the property and the buyers then own the home free and clear.
Mortgage loans are used to finance the purchase of homes. Qualified borrowers -- those with good credit scores and steady incomes -- can be approved for mortgages. When the loan is finalized, or closes, the borrowers sign a lot of documents. One of these is the mortgage, or deed of trust in some states. The mortgage document explains the terms and conditions of the loan, such as the amount borrowed, the repayment term, interest rates and penalties for non-payment.
Creation of a Lien
After the mortgage document is signed, it needs to be filed as a public record. Typically, the county clerk or county recorder handles this job. Once it's recorded, the mortgage also acts to place a lien against the property in favor of the lender. The lien is what gives the lender permission to foreclose on the property if you fail to meet the loan requirements explained in the mortgage. Other liens can be filed on property, too, such as tax liens or mechanics liens.
The lien remains active until the mortgage loan is paid in full. At this time, the lender creates the release of mortgage document, sometimes also called the satisfaction of mortgage, which declares that the loan is paid off. The release includes the basic information listed on the mortgage document, such as the date it originated, the borrowers' names, the mortgage lender and the total amount borrowed. The release is sent to the county clerk or recorder to be filed on record as well. Any subsequent title searches will show the mortgage and then the release. The mortgage lender no longer holds any interest in the property because the borrowers have fulfilled their repayment obligations.
A release of mortgage will also appear when a refinance loan is used. This is because the new loan completely pays off the old loan. Therefore, in this scenario three documents will be recorded: the original mortgage, the release of the original mortgage and the refinance mortgage. Another point to consider is that adding or removing an individual as an owner by using a quitclaim deed will not affect the mortgage loan. If one owner who is also on the mortgage is taken off of the title, the lender does not issue a release of his mortgage repayment responsibilities.