Q: My mother and father paid their house off a few years ago,
but they never got any paperwork from the mortgage company. They just
stopped getting bills. Now, they want to take out an equity line, but
their new bank says the deed of trust is still on the house, and they
need the old mortgage company to re-record the deed back into my
parents’ name. The problem is that the old mortgage company no longer
exists! Do we need a real estate attorney? What do we do now?
A: In one sense, your parents’ issue is a high-class problem to
have, and they have my congratulations for paying off their home. That’s
something we rarely hear of people doing anymore, these days! However,
their mortgage company was remiss in not reconveying the property back
to your parents.
The way it works is that when you take a mortgage loan, you sign an
IOU to repay the mortgage, called the “note.” You also sign a document
securing the loan with the house, called the “deed of trust.”
That deed is recorded with the county recorder, making it public
record that your lender has an interest in the property, and making it
clear to other lenders who might be considering making a loan that the
loan referenced in the deed of trust would be a senior lien (meaning,
it would have the right to get paid off first, in the event of a
foreclosure) to any later loans.
Once the note is paid off, nothing needs to happen with it. However,
depending on where you are, there are a few documentation steps that
need to be taken to remove the deed of trust’s position as a lien on the
home, as the new lender is requiring.
Often, a bank will issue a “notice of release of lien,” directly to
the county recorder and to the borrower. Another way this can happen is
for the trustee (who is named in the recorded deed of trust, but it is
usually a title or escrow company) to issue a “deed of reconveyance,”
which reconveys the lender’s interest in the property back to the
trustor (i.e., the borrowers, your parents).
When mortgage companies and title/escrow companies go out of
business, they almost never go fully out of business. Their loans and
accounts are generally taken over and serviced by a successor company.
Do some research on the Internet to see if you can track down which
company is the successor to your parents’ old mortgage company.
Get a copy of the deed of trust from the county recorder’s office,
and also try to track down the trustee listed on that, or its
successor. If that company was never sent a notice of release of lien,
or an order for a deed of reconveyance, they might at least be able to
help you determine what company is now servicing the mortgage company’s
accounts.
If that all fails, there is a last-ditch solution. Your parents can
obtain a surety bond, called a “lost trust deed note bond.” They will
have to put up some sum of money and provide any documents they can
(including canceled checks, bank statements showing the withdrawal, the
mortgage statements before and after the payoff, etc.) to the surety
company, which will then issue a bond that allows them to have the
title cleared of the mortgage company’s deed of trust.
I was able to find several companies that offer this for a fee of 2
percent of the amount of the note that was secured by the deed of trust
— so, on a $300,000 note, that would be $6,000. It’s obviously an
expensive solution, but it would allow your parents to move on. There’s
certainly no harm in consulting a local real estate attorney for other,
local solutions that might be available.
