Friday, May 11, 2007

query: previous owner never satisfied his mortgage would I be responsible

An unsatisfied mortgage is a lien against your real estate. Hopefully, the mortgage was paid in full and it's just a clerical oversight - the lack of satisfaction. So, let's just consider both cases.

If you purchase property with an outstanding mortgage and the Note hasn't been paid in full, the mortgage lender has the right to foreclose on your real property. It doesn't matter that YOU did not sign the Note. In this situation, you're in real trouble because you'll have to pay the Note to obtain satisfaction.

In most cases, the Note has been paid in full and the unsatisfied mortgage is simply a cloud on title.

When we find an unsatisfied mortgage from a prior owner on record, our first step is to contact the lender. We want to know if the Note was paid. If it was, we remind the lender of their obligation to satisfy the mortgage of record. We ask for a formal letter acknowledging that the Note has been paid in full and that the lender will process and file a satisfaction. We only trust institutional lenders. If we are dealing with a private mortgage lender, we will not insure title without a satisfaction piece in hand.

If we can't find the lender, we'll contact the owner's title insurance company and request an indemnification letter. We can only take this route if the owner is covered. If the only title insurance in place protects the lender, we can't get indemnification. This is a good example if why it is so important to purchase an owner policy.

So, with either an institutional lender "paid in full - will satisfy" letter or title underwriter indemnification letter in hand, we'll agree to insure and move forward with the transaction.

If we can't get either, we'll escrow funds from the owner pending resolution. The owner of the property must then hire an attorney to clear title.


Peter said...

A better answer might be that as the current owner you are not responsible for the mortgage since you did not sign it but your interest is subject to the lien of the mortgage and therefore can be wiped out in a foreclosure.

Diane Cipa, The Closing Specialists® said...

Thank you, Peter.