Scenario: I am about to close on the sale of my home and I get a call from my attorney that a mortgage that was paid off almost 20 years ago still showing on my title. How can that be?? This is crazy and the last thing I need to deal with! What can I do?? 

The Nightmare Mortgage

In some cases, mortgages are paid in full, but the mortgage company neglects to discharge the mortgage of record, thereby creating a cloud on the title. Usually, the mortgage company is still in business and are able to record a discharge of mortgage thereby resolving the issue, but sometimes they are out of business and there is no way to obtain a discharge of the mortgage. Consequently, this is still regarded as an “open” mortgage, causing a real headache for the owner of the property.

What Happens When a Lender Goes Out of Business?

When a mortgage company ceases operations, they often transfer their assets, including outstanding mortgages, to a successor financial institution. However, in some cases, no successor lender exists, or the records of the mortgage transfer are incomplete or inaccessible. This leaves the seller unable to clear title even if the mortgage has been paid in full.

The Role of a Quiet Title Action

In such situations, a quiet title action provides a legal pathway to resolve the issue. By filing a lawsuit in the appropriate court, the property owner requests a judicial determination to remove the mortgage from the property title. The court examines the evidence, such as proof of loan repayment and the lender's inability to provide a discharge, and may sign an Order discharging the mortgage lien.

Steps Involved in a Quiet Title Action

1. Gather Evidence: Collect documentation showing the mortgage was paid in full, including payment records and correspondence with the lender.
2. File the Complaint: A legal complaint is filed with the court, explaining the situation and requesting relief.
3. Notify Interested Parties: The court requires notification to any potentially interested parties, including the defunct lender (if possible).
4. Attend the Hearing: A court hearing may be held to review the evidence and address any objections.
5. Obtain a Court Order: If successful, the court issues an Order clearing the title.

Final Thoughts

Without a clear title, property owners may face difficulties selling, refinancing, or fully enjoying their ownership rights. Quiet title actions provide a practical solution to overcome these challenges, ensuring property owners can move forward without lingering doubts over ownership. However, before reverting to a Quiet Title action which can be a lengthy and costly process, there may be other ways of addressing this issue without the need for a formal court action.

If you find yourself in this situation, consulting with an experienced real estate attorney can help you navigate the process and secure a resolution efficiently.