Q My wife and I want to know what paperwork forms constitute ownership of a home? We have a “satisfaction of mortgage” document. The house is all paid off. Do we require a title? If so, what steps do we take in applying for it? – L.H.
A Washington is a lien theory state, which means that when a bank loans you the money to buy a house, it acquires a lien against your home but does not have legal title to the property.
When you bought your home, the deed was recorded in your name. Your escrow company should have given you a copy of all the documents that you signed when you purchased your home. If you pull out the papers and look at the deed and title insurance policy, you will see that you were listed as the legal owner of the property on the day that you closed.
The bank only holds a deed of trust, which is a legal document that gives a third-party trustee (usually a law firm or title insurance company) the right to seize your property and sell it to pay off the loan balance if you don’t make your mortgage payments.
That is known as a lien interest in the property. But keep in mind that as long as you make your mortgage payments on time, the lender has no right to your property whatsoever.
The lender’s lien also protects the mortgage holder in the event that you sell your home before the loan is paid off. Whenever there is an underlying loan on a property, the escrow company pays off that lender first before giving the remaining sale proceeds to the seller.
Once a mortgage or deed of trust is paid in full, a satisfaction document is recorded at the county records department to release the mortgage holder’s lien on the property. You don’t have to do anything to gain legal title to the property, because you already have it.
However, it is important to note that lenders occasionally fail to record the proper satisfaction documents to clear title to the property after a loan has been paid off. This can create serious problems down the road.
For example, one of my mortgage clients was once 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 several years before.
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 hard work by the title insurance company to straighten out the mess in order to prevent the deal from falling apart at the last minute.
Since you have a copy of the satisfaction document, it sounds like you are in good shape. You do not have to purchase title insurance at this time, because the purpose of title insurance is to prove to the buyers that they are getting clear title to your property.
However, it may be a smart idea to do a title search on your property just to be sure that all the mortgage satisfaction documents were properly recorded and all liens were released, so that you do in fact own your home free and clear of any mortgage liens.
That way, you can rest assured that you will not run into title problems if and when you sell your house in the future.
For the benefit of other homeowners reading this column, please make sure you receive proper documentation that your mortgage liens have been satisfied when you pay them off so you don’t have problems of your own.
Mail your real estate questions to Steve Tytler, The Herald, P.O. Box 930, Everett, WA 98206. Fax questions to Tytler at 425-339-3435, or e-mail him at economy@heraldnet.com.
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