Paid Off House: Will It Affect My Trust?

If your house is in a trust, will paying off the mortgage affect the successor trustee?

Q: Well, I just paid off my house and don’t know what the next steps might be. I did receive a letter from my mortgage lender congratulating me on paying off my loan but I don’t know what specific paperwork I should be looking for or requesting.

My home is in a trust. Upon my death the home will go to my son. I don’t know if or how that may affect the paperwork relating to my mortgage lender. I appreciate any information you can provide. 

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A: You’re asking two separate questions. First, what happens when you pay off your mortgage? And, will the ultimate transfer of ownership be affected by paying off the mortgage?

On the first issue, you sent in your last payment on your home mortgage to your mortgage lender. The mortgage lender, in turn, sent you a letter letting you know that your loan was now paid off. Please save that letter and don’t lose it.

In addition to the letter you received, you should have received a final statement from your mortgage lender showing that your mortgage loan account balance is now zero. Did you have a real estate tax escrow or an insurance escrow with your lender? Some lenders call those deposits with the lender’s escrow or tax impound accounts.

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In either case, any money left over with the lender after you paid your loan off in full should be returned to you. Usually, the mortgage lender will mail you a check for any funds they hold on your account two weeks after they receive your final payment.

Pay off the loan and the promissory note and mortgage will be cancelled. It’s best practice to send your canceled promissory note and mortgage for the loan. And we mean that literally. The promissory note and mortgage typically have a huge stamp across the front page of the note stating that the document was “CANCELLED.”

Of course, some lenders don’t send these documents back. That doesn’t mean you still owe money on the loan. Getting back those documents may help you avoid getting scammed down the line. Otherwise, someone might claim that they are the lender on your loan and that you owe money on that debt.

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That’s why getting your canceled note and mortgage are good to have. But all you really need is the statement showing that you no longer owe money to the mortgage company. You can and should check your credit history to make sure that your debt to your mortgage lender is showing “paid in full” and that your loan has a zero balance left to pay. This indicates that the mortgage lender sent information to the credit reporting bureaus to reflect that the loan was paid off.

And, one last document that you should expect to receive is a copy of the release of lien. This is the document that your mortgage lender files or records with the local government office that handles real estate filings or recordings. It indicates to the world that the lender released the lien against the property. Your home’s title is no longer encumbered by the lien of your mortgage.

Once you pay off your mortgage loan, there’s not much for you to do. It’s more like what you should expect to receive.

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Regarding your second question about the trust, the way you own your home shouldn’t matter. You own the property in a trust and the trust states that upon your death, your home goes to your son. Once you pay off the mortgage in full, your lender has an obligation to release any lien the lender has on your property.

The trust terms relate only to the ownership of the home. It does not affect the loan. If you have a mortgage, the lender still has a valid lien on the home whether you are the trustee and beneficiary of the trust or just the beneficiary. Upon your death, your son would become the successor trustee and beneficiary of the trust. But for your purposes, once you’ve paid off the loan, you shouldn’t have to worry about the lender interfering with your estate plan. Your son should become the successor beneficiary and trustee upon your death.

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