Legally? So you mean there are illegal ways?
Probably. That’s not the type of business I’m in though.
I was reading through some good legal bulletins recently, and came across this information from Ed McFerran, with McFerran Law, P.S. (253) 284-3838 and wanted to share.
As an agent (and investor myself), I’ve come across numerous occasions where an old Deed of Trust shows up on a title report or in public records. This can.. and almost always does.. cause all kinds of stress.
We know the story. You buy a house, the value goes up, you refinance and take a little cash out. Couple years later, you want to sell. What is this? You find there are TWO Deeds of Trust on the property, not just one from your current loan/refinance? Now, how in the world are you supposed to get rid of the first loan that was paid off years ago? Not only did that bank go out of business, but you certainly don’t have any old mortgage payoff statements or even an account number. Yikes!
It should be that when a mortgage loan is paid off, the escrow officer will insure that the Beneficiary of the Deed of Trust (the lender) makes a request to the Trustee that the trustee re-convey the property to the party entitled and, as a result of a recorded Full Reconveyance the lien will be eliminated from the property.
That’s a lot of big words. You lost me at Beneficiary… what?!?
When you have a mortgage against your property, the lender files a Deed of Trust against it on title. This is a lien, so you can’t sell the property without paying them first. If you have one mortgage, you have a 1st position deed of trust. A second mortgage or HELOC might be a junior lien, with a 2nd position deed of trust. There are some exceptions (like property taxes or IRS), but for the most part the lenders get paid in the order they record. Banks want to be a 1st lien, because they get paid first. 2nd gets paid second, a 3rd lien would be next to get paid, etc. The farther down the line, the riskier it is.
What should happen when you refinance your property is that the lender who was in 1st position gives you the “ok” to take their name off the list of people you owe money to. This is a full reconveyance. The lender has said on paper, “thanks, we’re all paid up” and the new guy comes in with his letter that says “you owe me now.”
Sometimes, that piece of paper that says you’re all paid up is missed. In the days before the Recession, refinances were occurring at a fast clip, and Lenders would often fail to send you that little love letter that you paid. Of course, you never knew this until you tried to sell years later.
It used to be that the only available remedy at that point was to hire an attorney to go through and complete a quiet title action in the local Superior Court. Yuck. That sounds expensive.
However, back in 2013, the legislature provided all of us with another option to reconvey those pesky Deeds of Trust without the attorney and court costs. This has been effective since July 28, 2013, but still seems to be pretty much unknown even around real estate professionals.
The Statute provides a mechanism now that the party who pays off the mortgage loan, pursuant to the payoff amount specified by the lender, may eliminate the lien of the Deed of Trust from the property. Of course, it’s a little more complex than just “I paid him!” You have to give proper notices to the lender and then wait 60 days. If there is no objection from the beneficiary (lender) within that 60 day period, the lien from that old Deed of Trust is no longer of any force and effect, and you’re free to proceed.
So, next time you hear a buddy panicking over this situation.. tell them to relax. It’s not as big of a deal as you think. Sure, it’s inconvenient and annoying, but we’ve dealt with much worse.
Need to get something unstuck or maybe a good resource to help you with your situation?
Call/text me at (206) 293-1005 or email: Jen@HudsonCREG.com.
These are matters I encounter daily, and have the right team in place for pretty much whatever you need. If I don’t know how to help with your problem, I promise I won’t pretend I do, and I will do everything I can to point you in the right direction.