QWe recently paid off our mortgage. The mortgage company sent us a release from the county where our property is located. However, the mortgage company claims that it does not have the original promissory note or deed of trust that we signed when we obtained this loan. The lender has agreed to send us copies of those legal documents.
We took out that mortgage 17 years ago. Over the years, our loan has been transferred to at least four other companies. Are we protected?
AI do not think you need to worry, but there are some steps you should take to protect yourself.
When you obtain a mortgage loan, you sign two important legal documents: a promissory note and a deed of trust. A bit more about them:
* The promissory note is your commitment to make monthly payments to the lender. It will spell out the terms and conditions of the loan, such as the interest rate, the maturity date and the consequences should you be in default.
If you do not make your payments, your lender has the legal right, pursuant to the terms of the promissory note, to sue you. If the lender obtains a judgment against you from the court, the lender has a number of ways to collect. The lender could attach assets that you have in banks or other financial institutions. The lender could garnishee your wages, which means that your employer must turn over a certain percentage of your paycheck to the creditor until the debt has been paid in full.
Federal law prohibits an employer from discharging an employee whose earnings have been subject to garnishment for any one debt, regardless of the number of levies made or proceedings brought to collect it.
The Consumer Credit Protection Act limits the amount of earnings that may be garnisheed in any workweek or pay period to the lesser of 25 percent of disposable earnings or the amount by which disposable earnings are greater than 30 times the federal minimum hourly wage.
Once a creditor has a judgment against you, the creditor could go to court to force the sale of your property; the sales proceeds would be used to satisfy the judgment.
If you are married and the house is titled as "tenants by the entirety," a creditor must have a judgment against both spouses to force sale of the house. On the other hand, if you own the house on your own -- or as joint tenants (or tenants in common) with another person -- the house can still be sold. In a joint ownership situation, in which the judgment is against only one of the property owners, while the house can be sold, only half of the sales proceeds can be used to satisfy the judgment. The other half would go to the owner against whom there is no court judgment.
Collecting on a promissory note is complicated, and requires court action. Accordingly, mortgage lenders look to the second document that you sign, the deed of trust.
* A deed of trust deeds your house to a trustee (or trustees) selected by your lender. According to the terms of this document, as long as your payments are timely, and you are not otherwise in default, the trustees can take no action against you or the property.
However, if you are in default, the trustees can sell your house at a foreclosure sale. Some states require court approval of such a sale. If you as the borrower believe you are not in default, the burden is on you to seek court protection against foreclosure.
The deed of trust gives your lender a procedure to quickly -- and inexpensively -- foreclose on your house should you be in default. The deed of trust is recorded among the land records where your property is located. It puts the world on notice that your house is subject to a loan, to assure that you cannot sell your property to a third party and thus duck the mortgage.
When you pay off your loan, the lender should do two things:
* Return the original promissory note and deed of trust to you, with the notation on the face of the documents that the loan has been paid and canceled.
* Arrange to record a release (also called a "certificate of satisfaction") of the deed of trust with the office of the recorder of deeds where that document was first recorded. Some lenders, such as yours, will record the release with the local government. Other lenders will send you the release, which you must arrange to have recorded.
You say that your lender does not have your original documents. I am not concerned about the deed of trust, as long as a proper release has been recorded. Your house is free and clear of any mortgage and you can now sell it or obtain a new loan knowing that the old obligation is no longer on the land records.
However, I am concerned about the missing promissory note. That is, in effect, a live document. Some unscrupulous character could find that document and demand that you pay according to the terms of the note.
Is it a real problem? Not really, but it might be a hassle for you, and you might have to go to court to protect yourself.
What should you do? You should try to find the original promissory note and have it marked paid and canceled. But if you cannot find the note, ask the current lender to send you a copy of it, with a cover letter stating that it has been paid in full and canceled.
In most cases, nothing will happen. But there are unsavory people out there, and a bit of caution might save you tons of problems in the future.
Benny L. Kass is a Washington lawyer. For a free copy of the booklet "A Guide to Settlement on Your New Home," send a self-addressed stamped envelope to Benny L. Kass, Suite 1100, 1050 17th St. NW, Washington, D.C. 20036. Readers may also send questions to him at that address.