QUESTION: The balloon payment on my second trust becomes due in a few weeks. I am prepared to make the payment at that time, but am not sure what steps to take. Do I have to go to the trustee to get a release? Is there usually a fee involved? How will the release get into the county records? Are there forms that should be prepared? Do I need a lawyer?
ANSWER: With the large number of seller takeback loans that have occurred in the last few years, both sellers who took back a mortgage and buyers should have an understanding as to how these deeds of trust are to be paid, canceled and released.
If you borrowed money from a commercial lender and secured the loan with a deed of trust on your property, that lender generally will assist you in releasing the lien on your property once you pay your note in full.
But when the seller has taken back a mortgage (deed of trust) and the note is finally paid off, you must do more than merely "burn" the mortgage.
When you borrow money secured by real estate, generally you deed your house in trust to a trustee selected by the lender. The trustee (or trustees) has a legal, fiduciary oblication to both the buyer (the borrower) and the lender. If the note is paid off in full at any time within the due date, the trustee must release its interest and have this release properly recorded among the land records.
If, on the other hand, the note is delinquent, the trustee may be asked by the note holder to begin foreclosure proceedings. An auction is usually arranged after proper and appropriate notice. State laws differ on the foreclosure procedures. The trustee has the authority to sell the property at the auction sale. This is known as a "power of sale."
Thus, it is important to make sure that your deed of trust is released when you finally pay off the note. Until it is properly released, it remains a cloud over your title. If you plan to sell your house anytime in the future, and if this old deed of trust is not released, you may have to pay money for a bond to release this mortage--especially if the noteholder has left the area or is otherwise incapable of signing the original promissory note as "paid."
In the District of Columbia, the trustee should be shown the note marked "paid in full and canceled" and given a deed of trust release to sign. In Maryland and Virginia, the original note, marked "paid and canceled" will suffice to have the deed of trust released from the land records.
When you are ready to make your final payment to the lender, arrange to exchange that payment for the original note, which will then be marked "paid and canceled." If the lender is out of the city or is reluctant to work with you, arrange to give the final payment to a bank, your attorney or a trustee who will be authorized not to release the money until the note is actually marked "paid and canceled."
You also asked whether an attorney is necessary. Not really, but for the rather nominal fee that most attorneys will charge for the preparation of this release, it might be worthwhile.
A note of caution. When you sign a promissory note secured by a deed of trust, make sure you have a copy of the note, that you know where the trustee is located, and that you also have made arrangements to make payments to a bank rather than to an individual. Most private lenders will be happy to make arrangements with a bank to collect the monthly payments.