Everett, Wash.
Published: Sunday, April 26, 2009

House paid off? What you need to check to be sure

By Steve Tytler

 Question: I recently was able to pay off my house a few years early (yippee!). I received the final notice from the mortgage company, complete with Snohomish County stamps indicating that they had recorded the payoff. I checked with Snohomish Country records to make absolutely sure that the payoff was recorded. Is there anyone else who should be notified or checked with to make sure that their records show that the mortgage has been paid off?

Answer: You are smart to check to make sure that the documents were properly recorded after you paid off your mortgage because sometimes things fall through the cracks.

First of all, you have to realize that we don't really have mortgages in this state. Almost all home loans in Washington use a document called a deed of trust, which is a security instrument that gives the lender the right to have a neutral party called a trustee sell your property at a foreclosure auction if you fail to make your loan payments on time. Lenders like this method because it is much faster and cheaper to foreclose on a deed of trust than on a mortgage, which requires taking the borrower to court.

The key thing to remember is that under a deed of trust, the lender never has legal title to your house. You were the legal owner of the property from the moment the sale closed and the documents were recorded at the county courthouse. The deed of trust is a lien against your property, which means that it's a financial obligation that stays on your title until it is removed.

When a deed of trust is paid in full, the lender will record a satisfaction document to release the lien on your property. As I said above, you don't have to do anything to gain legal title to the property because you already have it. And when the lien is released, you own the property free and clear, which means there are no existing liens.

The only problem is that lenders occasionally fail to record the proper satisfaction documents to clear title to the property after a loan has been paid off. You have to remember that once the bank has all its money, you become an administrative expense rather than a source of income, so that drops you to a very low priority item in their business operations.

For example, I have a friend who paid off the mortgage on his home a few years ago. He repeatedly called the lender asking for the satisfaction of mortgage document. Finally, after 14 months of constant pressure, he got the required documents to release the lien on his home. Who knows how long it might have taken if he had simply waited for the bank to record the documents on its own? Now, I don't want you to think that all lenders act this way, but things happen and you need to protect yourself.

If a mortgage lien is not properly released, it can create serious title problems in the future when you sell your home. For example, one of my mortgage clients was involved in a real estate purchase transaction in which the preliminary title insurance report showed that the sellers still owed $45,000 on a loan that had actually been paid off more than a decade ago. The bank had been sold since the original loan was made and the lender that acquired the mortgage failed to record a satisfaction document when the loan was paid off. It took a lot of scrambling by the title insurance company to straighten out the mess in order to prevent the deal from falling apart at the last minute.

You said that you checked with the county records department to make sure that your lender filed the satisfaction documents to release their lien on your property. That should be sufficient proof. To be safe, hang onto the copies of the satisfaction documents that the county sent to you in a safety deposit box or other secure location. And if you really want to be absolutely certain that there are no outstanding liens against your property, you could get a report from a title insurance company. It would cost about $200 to $300 for a title report alone, or you could spend several hundred dollars (depending on the value of your home) for a title insurance policy that not only reveals the liens against your home (if any) but also protects you from any undisclosed liens. That's probably overkill, but if you want total peace of mind, you could do it.

However, it sounds like you are already it good shape, so congratulations for becoming one of the relatively few people in this country to reach the American dream of owning your home free and clear.

Mail your real estate questions to Steve Tytler, The Herald, P.O. Box, Everett, WA 98206, or e-mail him at economy@heraldnet.com.
© 2009The Daily Herald Co., Everett, WA