How to remove a years-old, paid-off, yet unreleased mortgage appearing as a title cloud against a property and preventing a sale from occurring.

Example:  There is a “years-old” paid-off yet unreleased mortgage that is preventing a closing because the Seller cannot locate an old HUD showing it paid; the current title company cannot identify what title company closed the loan in the past; Seller cannot remember what title company was used in the past; Lender is either no longer in business or is unable to identify the loan at all and has advised you that they will research the loan but cannot tell you when they will get back with you (Despite the fact that there are laws in each state instructing lenders that they MUST record releases within a certain period of time – if no one pushes the legal button, the lender’s search of a years-old paid off mortgage is very low on their totem pole of tasks) – thus causing a title cloud.  In the old days (1999 – 2005??) a title attorney might have one of the following, with or without the sanctity of their underwriter:  Use a credit report to show that there is a zero balance on that loan; Have the debtor sign an Affidavit stating that they had paid the loan off; Disregard the mortgage because there has been no action filed against the debtor declaring that the debtor has failed to pay.  Although these methods previously used to clear titles may have appeared to be prudent, in fact they are some of the methods used that came back to bite the title companies and purchasers of properties with such clouds.  Today, in the new era of lending, title companies can no longer use these risky methods for clearing title.

This is what we did to remove the cloud:   We got out of bed, put on our clothes, brushed our teeth, fired up our car and drove 15.42 to the Indiana Floyd County Clerk’s Office.   We were sent from the County Clerk’s office to the Sheriff’s office and then to the Recorder’s Office.  Once inside the right room, we were greeted by a pleasant smiling woman who must have seen the bedazzled looks on our faces and she said, “Good morning, can I help you with something?”  We quickly identified ourselves as being from “over the bridge” in Louisville, and explained that we know how to look up recorded documents in Jefferson County Kentucky, but are not familiar with the Floyd County, Indiana system.  “Well come on over here and if you tell me what you are looking for, I’ll show you how we do it here,” she said in her inviting way.  We followed her over to one of the many available computer terminals and we proceeded to explain that we were looking for an old mortgage from between 2001 and 2004, provided the borrower’s name and the property address the mortgage would have been against.  Within 10 minutes we had tracked the mortgage in question and found that the original mortgage (mortgage 1) had an error in the maturity date so lender had issued a new mortgage (mortgage 2) to correct the maturity date.  When the loan was paid off, lender released (Release 1) Mortgage 1 but failed to release Mortgage 2.  Fortunately, Mortgage 2 specified that its sole purpose was to correct the maturity date of Mortgage 1.  We took copies of Mortgage 1, Release 1 and Mortgage 2 to a local branch of the lender and met with the Branch Manager explaining that this property is under threat of foreclosure, that we had negotiated a short sale and were required to close no later than 3 days later and that we were under the gun for a release of Mortgage 2.  Bank Manager called upon her Mortgage Manager to contact the national release department of that bank.  Within 15 minutes, we were copied on a fax informing the release department that they needed to issue the formal Release.  That document, along with a copy of Mortgage 1, Release 1 and Mortgage 2 (showing that only the maturity date of Mortgage 1 was being corrected) was enough to pass through underwriting and this closing went forward. 

Following this, we ate a wonderful lunch at a new restaurant in New Albany, Indiana and enjoyed our ride of 15.42 miles back to Louisville, Kentucky.