Q: My husband and I paid off our home in 1999, 10 years early. We never received a deed. The loan company said that deeds aren’t given anymore and that our paperwork is all we need. Recently a neighbor told us that deeds are given and we should have received one. What is really true?
A: Let’s start by saying that when you take out a loan, you generally give a lender a mortgage or deed of trust. A mortgage creates a lien on your property that gives the lender the right to foreclose and sell the home to satisfy the debt.
A deed of trust (sometimes called a trust deed) is also a document that gives the lender the right to sell the property to satisfy the debt should you fail to pay back the loan.
But there are differences between these two documents and how they affect you when you pay off your loan. When you pay off your loan and you have a mortgage, the lender will send you — or the local recorder of deeds or office that handles the filing of real estate documents — a release of mortgage. This release of mortgage is recorded or filed and gives notice to the world that the lien is no more.
On the other hand, when you have a trust deed or deed of trust, the lender files a release deed. With a deed of trust, you temporarily give control of the title to your property to the lender for security purposes. Once you pay off the debt, the lender conveys that temporary control back to you. That document also is recorded or filed with the local office that handles the recording or filing of real estate documents.
Over the past 30 years, Sam has seen dozens upon dozens of loans that have been paid off but for which the lenders fail to record or release their liens on these properties. Sometimes, all it takes is a call to the lender.
When you call the lender, ask for the release of lien department. They can usually research the account and issue the proper documentation that needs to be recorded or filed.
In your situation, we don’t know if you were given accurate information, but we suggest that you try to see if the loan company recorded or filed the proper documents, notwithstanding what you were told.
When you start to dig, you might find that you’re fine and that the loan company sent the proper document for filing or recording. You might see if your local recorder or other office has an online site where you can search documents and see if the lender filed the required documentation. Or you can go to the local recorder of deeds office and see if a kind person behind the desk is willing to help.
Finally — and this is pretty important — the lender should have sent you your canceled loan documents. If you have the canceled note, you at least have proof that the loan is canceled. Even better, if you have a final statement from the lender, it should show that your loan was paid in full. Most title companies can use those documents as evidence that a loan from almost 20 years ago was paid off.
While it’s best to have the release documents recorded or filed, the second-best thing is to have the canceled note and the final statement from the lender showing a zero balance on that loan account.
One last thing: If your original loan was a 30-year loan and you paid it off 10 years early, that means that the loan would have matured about 10 years ago. Most title companies would see that the loan term has long come and gone; and if you had defaulted on the loan, the lender would have had to have taken action against you years ago. There are times when after the passing of, say, seven, 10 or more years after the maturity of the loan, the title companies and settlement agents will take other paperwork to prove the loan was paid off when the lender failed to record or file the proper documents.
In any case, don’t worry too much. Look over the documents you received when you paid off the loan. See if you can find the last canceled check. Look over your documents for the canceled note and a final accounting of the loan showing a zero balance. If you find those papers, put them in a safe place (or scan them to an online folder), and you should be fine when it comes time to sell.
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 Ilyce and Sam through her website, ThinkGlink.com.