I have written before about the importance of making sure your mortgage company or lender executes and records a discharge of the mortgage or other lien recorded against your real estate when originally making the loan to you. Too often, loans are paid off and forgotten until the owner seeks to obtain a further loan or sell the property, and then finds out that the previous liens securing paid off loans were never properly discharged. This can cause major headaches and additional expense.
I recently encountered this situation, yet again, for a client who inherited real estate from her parents. Upon listing the real estate for sale and entering into a purchase agreement to sell the property, the title search revealed that her parents previously bought the property on a land contract in the 1960s from a land development company. The land contract was assigned to the developer's finance company and, thereafter, the land contract was sold and assigned to multiple successor finance companies, all of which no longer are in existence. Upon paying off the land contract, my client's parents never obtained a deed transferring proper title to the real estate to them as the legal owners.
As a result, we had to file a lawsuit to quiet title, and we are also asking the court to declare my client as the legal title holder to the property so she can sell it to the third-party buyer. We have spent hours trying to track down the last known address of the last finance company who had rights to the land contract, and obtain other information that the court is requiring in order for us to perfect the necessary service of process and notice provisions required in our lawsuit.
All of this effort and expense could have been easily avoided had my client’s parents demanded a deed to the property at the time they paid off the land contract obligation more than 30 years ago. Not to mention the fact that my client's buyer is also getting increasingly impatient with this process and may withdraw from the deal.
As a result, as much as I have raised this issue in previous publications, I nevertheless continue to see clients encounter these types of problems and complications in their real estate transactions. If you recently paid off a mortgage or other obligation that was secured by a lien against your real estate, spend a few minutes to confirm with the lender that a discharge of the lien is recorded. You’ll be glad you did.