In some of my title examinations, I run across a private mortgage that I can sense is paid off – and has been for some time. However, nobody ever filed the document at the courthouse – like they were supposed to – to tell the world the mortgage is paid off. This is a title defect and must be corrected if title insurance will not "cover it." It takes time, and sometimes money, to track down that old mortgage holder and get a satisfaction.
If the mortgage holder cannot be found, then a lawsuit may be filed to obtain a court order declaring the mortgage is no longer any good. The title history is cluttered up with noise - by a mortgage that is not supposed to be there. Since there is a “noisy” title, the lawsuit is called a “Quiet Title Action,” an action to shut up that noisy mortgage. (Quiet title actions are used for many other purposes than a noisy mortgage, but this is a common use.)
If a mortgage – privately held or bank owned - is paid off at a closing through a SC lawyer (which the law requires a SC lawyer to supervise it), then the lawyer takes responsibility for the mortgage payoff. The holder of the mortgaage still has the responsibility to satisfy it at the courthouse. There are other times when a mortgage is paid off not through a closing, in the ordinary course of business. This second situtation is the focus of this note.
When a seller (usually a seller, but can be any source of funds) takes a mortgage on real property as security for a promissory note, the mortgage is recorded in the county courthouse in the county where the land is located. This recording gives notice to the world that a mortgage is a lien. [Note: the promissory note is NOT recorded, only the mortgage.]
Recording is also important to establish priority, or where that mortgage is in relation to other mortgages, judgments and encumbrances on the land. Once the promissory note secured by the mortgage is paid in full, it is the responsibility of the holder to record a satisfaction of that mortgage at the courthouse.
Here is where most private folks get confused (banks know how to do this well, this article is for private lenders of money). Since a lawyer prepares (or should prepare) the promissory note and mortgage for the buyer and seller, the seller (or holder) thinks that the lawyer should be the one to satisfy the mortgage and record the satisfaction (in the same courthouse as the mortgage was recorded in). That could be true; however, the lawyer is not collecting payments and keeping track of the note/mortgage status. The lawyer has no idea if and when the mortgage is ever paid off until the lawyer is told so. The promissory note and mortgage can be sold, so the original parties to the note and mortgage may even change, a new holder! The same lawyer who prepared the documents may have had no involvement since the very beginning when the note and mortgage were first created.
Since the holder of the mortgage knows when it is paid off, the holder must satisfy the mortgage. A SC lawyer can make this happen, just tell her so she can help. Satisfaction of a mortgage can occur in two ways: 1) mark, or write, on the the original recorded mortgage “satisfied,” the holder of the note and mortgage signs it before two witnesses who also sign with the holder; or, 2) draft a satisfaction of lost mortgage pursuant to SC Statute § 29-3-330. Either way, get it recorded!
It should also be noted that if a holder fails to satisfy the mortgage and record it in the courthouse, then after 90 days a lawsuit could be brought against the holder under SC Statute section § 29-3-320 “Liability for failure to enter satisfaction.” Case law in SC bears out that it is very difficult to actually prevail (get money) on this cause of action. The statute must be precisely followed. The cases brought under this statute have, for the most part, failed from the borrower standpoint because the statute was not strictly followed, i.e. use the word “request,” proof of delivery of the request, etc.
The takeway: When a mortgage is paid off, another step must be taken to “take the lien off” at the courthouse. If you want a lawyer to do it for you, tell her. It does not happen automatically.
Note: A federal law called Dodd-Frank can affect private lenders. Please consult a South Carolina real estate lawyer to make sure you so not make the feds mad at you!