Title companies do most remediation work behind the scenes. Most often there are title defects and clearance issues without the buyer ever knowing that they existed and were taken care of. If a title company is doing their job efficiently and accurately, the issues that arise are immediately taken care of and resolved prior to the planned closing date. This is a main reason that Attorneys are recommended to represent buyers and sellers in a real estate transaction, so the issues are handled smoothly, and the client is able to sail through to closing.
Approximately one third of all real estate transactions require a title agent to undertake major complexities. Your agent will examine public records, look for past deeds, wills, trusts, bankruptcy filings, judgments, child support, and tax records that could either be defective or outstanding.
In my experience, the most common title defect is unrecorded mortgage and lien satisfactions.
There are many situations in which a lien, judgment, mortgage, tax delinquency, etc. has actually been paid off already by the homeowner and the creditor failed to record the satisfaction with the county registrar. When this occurs, the title report will show it as an open lien. Mainly because nobody took the appropriate next step to properly discharge the lien of record. At this point, the sellers of the transaction are made aware that to close on their sale – proof of payment must be provided and the lienholder must be notified and produce a discharge. At this point there is often a concern amongst sellers, they often start to worry that their lien may be owed and start to dig up proofs they paid. Lienholders are required, by law, to remove their lien off a property once the debt is satisfied. However, there could be several reasons that they have failed to do so.
What if the lien is 20 years old and the bank is no longer in business? What if it is a Private lien between family and they do not know how to file a discharge?
3 Reasons a Lienholder hasn’t filed a Discharge or Satisfaction:
1) The lienholder or original creditor is no longer in business – We see this often with lending institutions and mortgages that were taken out in the early 2000s. After 2008, many banks and lending institutions were merged or went under. So much paperwork was left unaccounted for and the new servicing companies failed to follow through on discharges. To resolve these cases, the title company must research who the mortgage was taken over by and will spend hours tracking down the right person to issue the necessary document.
2) Private lenders are not always aware that they need to file a discharge once they are paid. We often see private lending situations, mostly amongst family members, to which the lien was satisfied by the homeowner and the ‘’lender’’ did not file a discharge. At this point the title company may offer to prepare a discharge for the lender and have them sign it at closing. These situations may require more time for the title company to coordinate with that lender to get the originals signed and notarized.
3) Lack of Follow Through. Many mortgage companies and lien holders have a department designated to following through on filing discharges on open mortgages. However, we do see that sometimes it just was not done. And reason being that somewhere, within the department it was missed or overlooked. And this happens quite often. At this point the seller’s attorney or the title agent will contact the bank and get the ball rolling to get it filed.
Can you close on a transaction without the discharge? The answer is Yes and No.
It happens on a case by case review of the file. So many things can determine if a title company is willing to close by holding funds in Escrow until the required documents are received. Factors might include, age of the mortgage, face amount, payment proofs, type of mortgage, etc. For example, a title company may propose to hold 2x the face amount of the mortgage even if the seller claims that they paid. Let’s say the face amount of their mortgage from 2003 was $250,000. The title company may want to hold up to $500,000 in escrow until the seller’s end or lienholder produces the discharge.
It is safe to say that many parties would prefer to produce the document and get all their proceeds at closing, but every situation requires careful review and consideration. The title agent will determine the risks involved and options for resolution.