Q: I sold my home three years ago, but the mortgage company says that I still owe money on the mortgage. I told them the loan was paid off, but they keep telling me that it wasn’t and they won’t give me any other information.
I have not made a payment on the loan for three years, and yet they still say I owe money. They haven't done anything about coming after me, but the house is sold. What can I do?
A: When you sold your home three years ago, we imagine you closed on the sale at the offices of a title company, closing agent or attorney or a settlement agent. At that closing, the closing agent was supposed to pay the final amount owed on your loan. We suspect what happened is that the closing agent didn’t get the right payoff amount for your loan or failed to get the payoff amount to the lender on time.
Here’s what should happen: Your attorney or closing agent will order a demand letter (also called a payoff letter) from your lender. That demand letter will give the bottom line number that is needed to pay off the loan in full by a certain date. Every day that the payoff is delayed means you’d owe a higher amount to the lender.
The things that could have gone wrong include: The closing agent (1) sent an amount to your lender that was short payoff funds, (2) sent the amount by mail, and the funds got to the lender after the due date in the demand letter, or (3) sent the wrong amount due to a failure to read properly the amounts owed in the demand letter.
In each of the above situations, the amount you’d owe the lender would be small. If the payoff was short a couple of days' interest or short a fee of some sort, the amount you’d owe the lender should be quite small relative to the loan size.
Here's where it gets interesting. Your closing agent had the obligation to make the payment properly and on time. You may need to go back to the closing agent and have them figure out what they did or didn't do to pay off the loan when you sold your home. It could be that the closing agent's company now has to fix the mistake that the closing agent made three years ago.
Here's where you have to balance your time and the costs involved. If you can find out the amount owed on your old loan and the amount is $50, you might just want to pay it and be done with it. Otherwise, you will need to search through your papers and find the closing agent that closed your deal and ask them to fix the issue.
We've received letters from some of our readers over the years that have had settlement agents deny they had anything to do with some issues. In some cases they were right, but in others the closing agent was clearly obligated to do certain things and to do those things right and when they didn't do it right, the settlement agent should step up and fix the problem.
Having said all that, if your lender messed up and gave the wrong payoff amount, or the settlement agent paid the right amount and, through no fault on their end, the amount was not sufficient to pay off the loan in full, you would have paid the difference when you closed. It would be up to you to pay that amount to your lender now, even though it is three years after the closing.
Keep in mind that you might want to pull a copy of your credit report and determine if your old mortgage lender is still showing your loan as unpaid and see how much they are showing as a balance. You can get a free copy of your credit report from AnnualCreditReport.com. This site allows you to get a copy of your credit report from each of the big three credit-reporting bureaus. You can get one copy from each of them once per year.
Once you download a copy, you can look in the report under loans and mortgages and you should see your old mortgage loan listed. If you see that the balance is $50, you will know that the payoff was short that amount and you’ll know where you stand. If the balance owed is “0,” the lender may be showing the loan as paid in full. You can look a little deeper and see what the payment schedule was during the last three years to see if you can tell when the loan was paid in full.
Doing a little legwork first will help you figure out where you stand with your lender before you end up on hold forever with a big-box lender that won’t or can’t give you information or chasing down your closing agent who may or may not be at the same office.
Finally, we have seen some home sellers fail to give the right information to closing agents and get away with closing on homes without paying off old loans. Eventually, the title company that insured that transaction will send the file to the claims department, and the claims department may come after you for the amount you owe — if you actually didn’t pay off the loan and the closing attorney missed having to pay off that lender. Good luck.
Ilyce Glink is the author of “100 Questions Every First-Time Home Buyer Should Ask” (4th Edition). She is also the CEO of Best Money Moves, an app that employers provide to employees to measure and dial down financial stress. Samuel J. Tamkin is a Chicago-based real estate attorney. Contact them through her website, ThinkGlink.com.