How to Pay Off a Mortgage Before the Transfer of a Deed to a Beneficiary
Real property has an official ownership record, known as a title, that is maintained by the land records recorder in the county where the property is located. Every debt on the property, such as a mortgage, is recorded against the title. Whenever the property is transferred to a new owner, an insurance company checks the record to ensure that it can provide a title insurance policy guaranteeing the new owner a title free of debts. The satisfaction of any debt attached to the property must be recorded because the public record is the only evidence of the status of the property that an insurance company will accept to issue a title policy.
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Instructions
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Obtain a mortgage payoff amount from the lender. Mortgage interest is often calculated on a daily or bi-monthly basis. It is not sufficient to look at the balance of the mortgage on your last statement and assume this is the payoff amount. Contact your lender directly. Many lenders have a payoff calculator tool on their website or one that is accessible over the telephone. Request a payoff amount as of a certain date. The amount they tell you to pay will be valid within a certain number of days of the date you provide.
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Consult with your lender regarding the handling of any amounts in escrow. Often, mortgages have escrow accounts for regular payments and taxes. Determine the balance of these amounts and how they figure into the mortgage payoff process.
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Pay the outstanding amount of the mortgage. Use the information provided by the lender to make a payment in the proper amount to completely satisfy the mortgage. Make sure the payment is received by the lender by the date under which the payoff amount is valid. Use registered, certified or express mail.
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Obtain a satisfaction of mortgage from the lender. The lender should send you three documents once you have paid off the mortgage: the original mortgage document; the original promissory note stamped "paid"; and a legal document called a satisfaction of mortgage. Sometimes, the lender simply sends a letter congratulating you on paying off the mortgage without sending the legal satisfaction document. Occasionally, the letter can substitute as the satisfaction, along with the mortgage and note. Make sure you have whatever combination of documents is required by the recorder of deeds in the county where the property is located to record a satisfaction of mortgage. Call the lender directly if it does not automatically provide the right paperwork. The lender is required by law to provide you with paperwork sufficient to release the mortgage on the public record.
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Record the satisfaction of mortgage with the recorder of deeds in the county where the property is located. It is imperative to record the satisfaction of mortgage before transferring title to the property to a beneficiary or anyone else. A title is like a chain with links that have to follow in the proper order for the chain to be valid. Occasionally, the lender will file the satisfaction of mortgage with the recorder for you. If this is not the case, take all of your paperwork to the recorder and follow the office's instructions for filing the satisfaction yourself. Once the title has been cleared of all debts, you can transfer clean title to the beneficiary.
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Tips & Warnings
If the property has more than one mortgage, such as a primary and a secondary or an equity loan, repeat the steps with each lender. Clear the title with a recorded satisfaction of mortgage for every encumbrance on the land record before transferring title.
If the lender holding the mortgage is an individual, rather than an institution like a bank, do not simply send over full payment of the mortgage. Arrange to exchange the pay off for the satisfaction of mortgage paperwork at the same time at an in-person meeting or by using an escrow service. Sometimes it is hard to track down an individual who does not send out timely paperwork once he has the money in hand. Without a recorded satisfaction of mortgage, you cannot clear the title to the property. Protect yourself against this problem by organizing an equal and timely exchange of all items needed on both sides of the transaction.
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