Unreleased Mortgages – The Hidden Nemesis

Unreleased Mortgages – The Hidden Nemesis

I recently ran into a very surprising situation involving a real estate transaction that should have been simple.  The client was selling a residential property.  It was a single family home with a simple single mortgage.  Ordinarily, you can pull a title search, prepare the commitment and close within two weeks of opening the file.  However, this title search revealed an unreleased mortgage from 20 years prior to the search.

The issue is that normally none of the succeeding transactions would ever occur without the mortgage being released, but sometimes mortgage companies would not record the release because they would send it to a customer and make them record it which the customer oftentimes would not do because the sale had already occurred with proof of payment being in the HUD-1 at closing.

The result:  A perfect closing with perfect title, except it isn’t on public record.  Only with the title commitment can you fully know that the mortgage has actually been paid off, released, but the release hasn’t been recorded.

The solution:  Get a copy of a prior title policy showing the mortgage as cleared.  So what do you do if the title policy is not accessible.  Bottom line – forensic title work.  Usually you are looking for any indications of a title company or title insurer on successive mortgages that come later in time.  Then you call them, ask for a copy of title and work backwards.

The moral of the story:  Even if everything should  be on public record, you should:

Keep a copy of your HUD-1
Keep a copy of your title policy
Keep a copy of your recorded deed
Store them in your safety deposit box

TODAY the story is different.  When you close today, the title company collects $48 for each mortgage so that the release is guaranteed to be recorded.  This law was enacted in the later days of the housing boom as unrecorded mortgage releases became rampant.

Bottom line: Be prepared, when you sell your house, you may have an unrecorded release of mortgage to deal with.  Good luck and clear titles to you.

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