Q. We recently sold our house in the District of Columbia, and were informed at settlement that there was an old mortgage lien that had to 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. 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 trustees, who usually are selected by the lender and who act in a fiduciary capacity for you and your lender.
When you pay off your note, the trustees are obligated to release the trust. If 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 can sell your house at a private or public auction for whatever the property will bring.
When you are dealing with a financial institution, whether it is a bank, mortgage banker or savings and loan association, that institution usually handles the release process. In any event, when you sell your house, the settlement attorney is responsible for obtaining necessary releases.
However, it often 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 sell your house freely until these trusts are released from the land records in the city or county where your property is situated.
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 change.
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, 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 Recorder of Deeds Office downtown. This greatly adds to the paperwork process in the District, and costs you slightly more than in other jurisdictions.