Q: My husband and I love to read your articles in the Home section of our local paper.
We are close to paying off our home mortgage and would like to know the documents that we will receive from the mortgage company once we finish paying off our mortgage.
Our loan was recently transferred to a new servicing company that we are not familiar with. This new company does not have the same level of service or rapport with us as customers. We want to receive all the appropriate documents (especially if they are required by law) to show that we own the property free and clear.
A: Congratulations on getting close to paying off your home in full. Not many homeowners get to say that they’re mortgage-free.
When you pay off your loan and you no longer have a balance with the lender, the lender should automatically show your account as having no balance. You’d assume that as a given, but you need to distinguish between different kinds of mortgage loans.
If your loan is the standard 15-year or 30-year fixed-rate mortgage, your lender should send you a letter telling you that you’ve paid your mortgage in full and enclose the original note and mortgage you signed many years ago. Each of those documents may be stamped “cancelled” by the lender. (Some of our readers actually frame their canceled mortgage document!)
The note you signed some time ago is an instrument that gives the holder the right to collect money under the loan. One lender may transfer that note to another lender and each subsequent lender can rely on the note to claim payment from you. Think of your note as a check that’s written to a friend. The friend doesn’t cash the check but endorses it over to a different person. At some point, the holder of that check may want the money owed under the check.
Because the note you signed is a legal instrument, you want to get it back and see that it is cancelled.
But if you have an equity line of credit – a loan against which you can borrow, repay and borrow again –the lender knows you can withdraw funds in the future, on demand. If this is the kind of loan you’re asking about, you won’t get anything from the lender unless you tell the lender that you want to close the loan and terminate the arrangement where you can borrow additional funds.
Once you terminate an equity line of credit or if term ends and you have no balance on it, you’d expect to get the cancelled note and mortgage back from the lender.
So if your loan has come to an end and you’ve paid it off in full, and you’ve received from the lender your cancelled note and mortgage, you still need the lender to release the lien it had on your property. In some states, your lender may send that release document straight to the office that records or files property documents where you live. That document may be called a “Mortgage Release,” “Release of Deed of Trust,” or may be referred to by some other similar name. You could then check with your local recorder of deeds office to see if the release has been filed.
When you took out your mortgage, your lender had a lien placed on your home to have your home serve as security in case you failed to make payment sunder your loan. Once you pay off your loan, the release of lien tells the world your property is no longer encumbered by that lien.
To summarize, you need to get back your original note, mortgage, the release document and final statement from the lender showing your loan paid in full. That should be it. With those documents, you should have enough to have comfort that you’re done with the lender.
Please remember to contact your homeowner’s insurance company to have them remove your lender’s name as an additional insured on your policy. Now that your loan is paid in full and don’t have a lender, you don’t want to deal with that lender in the future if you suffer a loss on your home and make a claim with the insurance company.
Also, some lenders have become quite slow in returning the note and mortgage back to their borrowers. If you don’t get these documents back, but the lender does release the lien and you have a statement from the bank showing that your loan balance is zero, you should be fine.
While it would be great to have the original documents, a quick check of your credit at AnnualCreditReport.com should show that your lender has reported that the balance outstanding on your loan is now zero.
A final wrinkle: if the release is sent to you directly by the lender, you must take that document to your local recorder of deeds office or other office where real estate documents are filed and record or file that document. Once you do that, your property will then show that the lien of the lender has been released.