Lenders secure mortgages by placing liens on a property. Liens are legal claims. Since the lender has a legal claim to your home, he has the right to seize the property if you stop paying the mortgage. After you make the final mortgage payment, the lender begins the process of removing the lien. In most cases, the lender automatically initiates the process. However, there are some exceptions, and the lien isn't always released as required. Your lender is legally obligated to lift your mortgage lien once it's paid off, but it can take some persistence on your part. Fortunately, there are steps you can take to release the lien.
TL;DR (Too Long; Didn't Read)
If the mortgage company failed to release the lien after you paid off your balance in full, you can contact them, purchase a surety bond or request assistance from the Federal Deposit Insurance Company.
Research State Laws
Check your state laws to determine how liens are released in your location. In deed of trust states such as California, Alabama, New Hampshire, Mississippi, and Michigan, the trustee holds the deed and is responsible for filing a deed of reconveyance once the loan is paid as agreed. In mortgage states including Florida, Montana, New Jersey and Vermont, the lender prepares and records a release deed or release of lien to clear the title. The amount of time lenders have to release the liens varies by state. For example, in the District of Columbia, lenders that fail to deliver a release within 30 days of a written request may be subject to a $50-a-day penalty to the borrower, plus damages including lawyers' fees. In Virginia, lenders have 90 days to record or deliver a release of payoff, or face a $500 penalty.
Call the Lender
Start by calling your lender. Ask for the department that handles release of liens. Since mortgages can take 30 years or longer to pay off, the original mortgage company may have gone out of business. When a mortgage company goes out of business, a successor company usually takes over the accounts. Contact the state's Attorney General to find out if another company is now servicing your mortgage account. Follow the lender's procedure for receiving a release. You may need to submit a written request asking for a release. If the lender is not willing to comply, contact an attorney or legal advisor.
Help from the FDIC
If you aren't having any luck with the lender, the Federal Deposit Insurance Corporation (FDIC) may be able to help. In some cases, the FDIC can issue a "Release of Lien" if the bank has failed. When banks fail, the FDIC is often appointed the receiver, which means they assume the lender's role. According to the FDIC, the release can be issued if the loan institution that failed has been placed in FDIC receivership. The FDIC Resolutions and Receivership customer service line can answer questions and determine if they're servicing your loan. The FDIC also states that the loan must have been paid off before the institution failed. You'll need to submit a copy of your mortgage or deed of trust, proof the loan was paid, and a recent title search showing the lien still present.
Purchase a Surety Bond
Although it'll cost, there is another option when all else fails. You can obtain a surety bond, known as a "lost trust deed note bond." When you can't track down the lender or they fail to release the lien, a title company can be used to file a reconveyance. You need to purchase the bond, generally equal to around twice the amount of the original obligation secured by the mortgage or deed of trust. The surety company will request proof of payment, including canceled checks, bank statements showing the withdrawal and mortgage statements before and after the payoff.
- Surety 1: California Lost Trust Deed Surety Bond
- Nevada Legislature: Release of Lien Rights or Notice of Lien by Posting Surety Bond
- Companies Incorporated: Mortgage States and Deed of Trust States
- The Washington Post: Title Problems Can Snag Your Closing
- Virginia Law: Code of Virginia
- US Legal: District Of Columbia Assignment And Satisfaction Of Mortgage Law
Jeannine Mancini, a Florida native, has been writing business and personal finance articles since 2003. Her articles have been published in the Florida Today and Orlando Sentinel. She earned a Bachelor of Science in Interdisciplinary Studies from the University of Central Florida.