Q: We recently sold our house in the District of Columbia, and at settlement were informed that there was an old mortgage lien on the property that had to be paid off.
Several years ago, a friend lent us some money, which was secured by a deed of trust. But we paid off that obligation five years ago. What should we do?
A: When dealing with private investors, the message cannot be made stronger: Make sure the mortgage (deed of trust) is released from the land records just as soon as you pay off your loan.
In this part of the country, we use deeds of trust rather than mortgages. Oversimplified, the distrinction between the two forms of security is that to foreclose on a mortgage, court action is required. Under a deed of trust, however, you (the borrower) deed the property "in trust" to two or three named trustees, who act in a fiduciary capacity for both you and your lender.
When you pay your note off in full, the trustees are obligated to release the trust. In the event you are in default, your lender can direct the trustees to institute foreclosure proceedings. After publishing a notice of foreclosure in a local newspaper, the trustee is authorized (under the terms of the deed of trust) to sell your house at a private or public auction for whatever the property will bring.
The lender usually selects the trustees.
When you are dealing with a financial institution, whether it is a bank, mortgage banker or savings and loan association, the release process is usually handled by that institution. In any event, when you sell your house, the settlement attorney is responsible for obtaining the necessary releases.
However, it oftens happens that you, the homeowner, obtain a loan from a friend or a relative that is secured by a "deed of trust." When you pay off the loan, you usually celebrate, have a party, and "burn the mortgage."
But that's the last thing you should do. Don't forget that a deed of trust is a cloud on your title. You cannot freely sell your house until these trusts are released from the land records in the city or county where your property is located.
The process for releasing a deed of trust is not complicated. In Maryland, for example, you present the note to the county clerk, and so long as the note is marked "paid and canceled" (with some additional statutory language) the trust will be released. You pay a nominal recording charge, and your house is free and clear of that lein.
In Virginia, the noteholder endorses the note stating "paid and canceled," signs a certificate of satisfaction, which must be notarized, and the note and the certificate are sent to the county clerk for recording, for a nominal recording charge.
In the District of Columbia, while it is not complicated, archaic laws make it a little cumbersome to obtain the release.
A deed of release must be prepared, you must pay the trustee a nominal sum (usually $10 plus 50 cents for a notary), have the notary acknowledge the signatures, and then record the release at the recoder of deeds office downtown. Needless to say, this process greatly adds to the paperwork process in the Distict, and costs you slightly more than in other jurisdictions.