Count to Five Before You Send the Last Check

Sunday, May 4, 2008

Many people look forward to the day they own their homes free and clear. But gathering the money to pay off the mortgage is only part of the process. It's also important to make sure all the paperwork is in order.

Here are five common questions to which homeowners should know the answers before they mail that final check.

1. What should you do before you send off the check?

"Get a written payoff statement from your lender," said Craig Buck, a title attorney in Fredericksburg. "Then, carefully check the interest calculation. Interest is paid in arrears, so the last mortgage payment you made actually paid for the prior month's interest. You will need to add enough interest to cover the time it takes your funds to reach the lender. If the amount you send is short, the lender will return your payoff as insufficient. Overpaying is safe as they will refund the difference."

2. How long does the process typically take on the bank's end?

"You should receive a confirmation within 30 days," Buck said. "Call to verify the payoff has been received. In Virginia, the lender has 90 days to either record the release documents at the courthouse or return them to you for you to record."

In Maryland and the District, the lender must return the release form to you within 30 days, said Harvey S. Jacobs, a title lawyer who works in both jurisdictions. There are penalties for lenders who don't comply with that schedule.

3. Which papers should you hang on to? How long? Where should you keep them?

"In Virginia, the release document is called a certificate of satisfaction," Buck said. "Once recorded at the courthouse, the lien is off the property and you don't need to keep copies. However, you should retain the interest statements with your tax return records."

A similar form is used in other jurisdictions, though in the District it can also be called a Deed of Release, Jacobs said.

4. What are some things that can go wrong?

"Lenders often neglect to provide the certificate . . . or the lender sends the certificate to the borrower who forgets to record it," Buck said. "Years later, the certificate is lost. In either case, when lenders go out of business or merge, it can be very difficult to prove you paid the loan off."

Borrowers should also be aware that some banks respond more promptly than others, Jacobs said. The higher the interest they charge, the more incentive they have to delay sharing the payoff amount. To prevent any glitches, start the process early.

5. What can people do to make sure everything goes smoothly?

One option, for those who are worried about keeping track of the details: Hire a settlement agent. "In Virginia, a settlement agent has authority to sign and record the certificate on the lender's behalf if they do not respond as required," Buck said.

Another option: In the District and Maryland, you can also record your original note or deed of trust (returned by your lender) marked "Paid and Canceled" in the same manner as a certificate of satisfaction, Jacobs said.

-- Mary Ellen Slayter