Can’t Get No Satisfaction…(At Least Without Legal Assistance)

     The five years prior to 2007 saw very heavy, perhaps record-breaking, activity in the area of home mortgage re-financing.  This phenomenon was driven mainly by homeowners who wanted to “cash-out” the existing equity in their homes or by homeowners who wanted to take advantage of lower interest rates.

     One unexpected problem that can arise after a re-financing is that the prior mortgage (the one that was paid off) never gets “satisfied.” Satisfaction of a mortgage is the process by which a mortgage holder places of record with the Recorder of Deeds a statement to the effect that the mortgage has been paid and the land is no longer encumbered by the debt.

Failure to satisfy the mortgage can cause real problems for a landowner who later attempts to sell the property or refinance the current mortgage.  Since the unsatisfied mortgage is still of record and valid in the eyes of a third party, it remains a “cloud on title” and the property becomes difficult or impossible to sell or re-finance.  It then becomes the landowner’s job (or in some cases the landowner’s title insurance agent’s job) to have the prior mortgage holder satisfy the paid-off mortgage.  This can be an uncomfortable and frenzied process because failure to obtain the satisfaction from the bank or mortgage holder can delay a closing or even break an otherwise contractually solid deal.  This problem becomes more acute because certain large banks interpose huge, hazy administrative structures that almost seem designed to delay the process.

Over the past decade the innumerable bank mergers across the country caused a flood of mortgage assignments.  This inevitably led to lost and misplaced files and key documents, further exacerbating the problem.

Fortunately, Pennsylvania law provides a way of “incentivizing” the laggard bank into getting its act together and satisfying the paid-off mortgage.  A bank which receives a notice from a paid-up landowner to satisfy the mortgage has 60 days in which to provide such a satisfaction.  If it does not satisfy the mortgage within the 60 day period, the landowner has a lawsuit against that bank – and can, under the right circumstances, recover a penalty up to and including the amount of the original mortgage.  Imagine a bank having to pay back all the mortgage principal simply because it failed to file a piece of paper in a timely manner.

One cautionary note, the landowner cannot merely send an ordinary, to-whom-it-may-concern letter to put the bank on notice; the form of the notice and the contents of the notice are provided by statute and the landowner deviates from that form at its own peril.

If you have re-financed and are not sure that the prior, paid-off mortgage is satisfied, you should check with your local Recorder of Deeds.  It is often sensible to handle this problem now rather than waiting and having to deal with the pressure that comes with short time frames and a potential loss of a deal.  As always, we stand ready to help with your real estate needs.

–Rod Fluck


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