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2.17 Failure to Provide a Timely Release

Payment in full of a mortgage loan extinguishes the security interest in the property. However, unless the mortgage holder records a release or discharge in the local land records office evidencing satisfaction of the loan, the mortgage remains a cloud on the homeowners’ title and may limit their ability to sell or refinance the property.305 The widespread sale and securitization of home mortgages has made the process of obtaining a release of a mortgage much more complicated. Payoff amounts are often directed to the servicer, who must either obtain and record a release from the holder of the obligation or pass that responsibility to the holder itself. Identifying the holder, however, sometimes leads to a game of “Who owns the loan?” in which the chain of title from the originator to the ostensible current holder is uncertain or not properly documented.306

While most states have enacted statutes that deal specifically with the recordation of releases upon payment in full, the time allowed from payoff to recording varies widely, as do any damages available to the homeowner.307 When the penalties for noncompliance are relatively small, lenders may have limited incentives to comply.308 Additionally, some states require a demand notice before statutory penalties will apply.309 Several courts have considered and rejected servicer arguments that state mortgage satisfaction statutes are preempted by federal law.310 One court has held that statutory penalties are not collectable from the GSEs so long as they are under conservatorship.311 Another court has held that a mortgagor failed to allege a concrete injury, pursuant to Spokeo,312 and therefore lacked standing to assert a claim against the mortgagee for failure to timely record satisfaction of the loan.313

In addition to statutory claims, borrowers may be able to assert common law claims for breach of contract and breach of the covenant of good faith and fair dealing, as well as for equitable relief.314

Footnotes

  • 305 {297} See, e.g., Zink v. First Niagara Bank, 206 F. Supp. 3d 810 (W.D.N.Y. 2016) (preliminary approval of $2.2 million class settlement); Pintor v. Ong, 259 Cal. Rptr. 577 (Cal. Ct. App. 1989) (awarding homeowner $300 in statutory damages and $15,000 in emotional distress damages based on lender’s failure to reconvey deed of trust after underlying debt was paid); Pierce v. Bank One, Oklahoma, 24 P.3d 381 (Okla. Civ. App. 2001) (affirming award of $22,000 for bank’s failure to record a proper discharge within the time period specified by statute).

  • 306 {298} See Stromberg v. Ocwen Loan Servicing, L.L.C., 2017 WL 2686540 (N.D. Cal. June 22, 2017) (refusing to dismiss claims against multiple parties when it was not possible at the pleading stage to determine the responsible party).

  • 307 {299} For example, in Massachusetts an entity that has accepted payment of a mortgage pursuant to its payoff statement must record or provide a proper discharge and supporting documentation (assignments, mergers, and so forth) within forty-five days of receiving payment. If a mortgage holder or servicer fails to comply with the statute, the mortgagor is entitled to statutory damages of $2500 or actual damages, whichever is greater, plus attorney fees and costs. See Mass. Gen. Laws ch. 183, § 55. See also Alaska Stat. § 34.20.050 (release required within ten days of payoff; damages of $300 plus actual damages); Conn. Gen. Stat. § 49-8 (release required within sixty days from payoff; damages in the amount of $200 per week up to $5000 or actual damages, whichever is greater, and attorney fees); Me. Stat. tit. 33, § 551; N.Y. Real Prop. Law § 275 (McKinney) (requiring release to be presented for recoding within thirty days of payoff and authorizing increasing statutory damages depending on the length of delay beyond thirty days); Vt. Stat. Ann. tit. 27, § 464 (thirty days; damages of $25 per day up to $5000); Currier v. Huron, 940 A.2d 1085 (Me. 2008) (awarding $5000 in exemplary damages for failure to provide a timely release).

    A summary of these statutes is provided in Appx. D.2, infra.

  • 308 {300} In re Consol. Mortg. Satisfaction Cases, 780 N.E.2d 556 (Ohio 2002) (certifying class challenge to lenders’ failure to comply with Ohio statute governing timely recordation of releases). But see Alexander v. Wells Fargo Fin. Ohio 1, Inc., 2009 WL 2963770 (Ohio Ct. App. Sept. 17, 2009) (arbitration clause in conjunction with mortgage transaction blocks right to class action for failure to file entry of satisfaction within statutory time period).

  • 309 {301} Mo. Rev. Stat. § 443.130. Compare Glass v. First Nat’l Bank, 191 S.W.3d 662 (Mo. 2006) (borrower’s letters satisfied statutory requirement even though statute not explicitly referenced in letters), with Garr v. Countrywide Home Loans, Inc., 137 S.W.3d 457 (Mo. 2004) (finding borrower’s letter insufficient to invoke statutory penalties for failure to release mortgage), and Murray v. Fleet Mortg. Corp., 936 S.W.2d 212 (Mo. Ct. App. 1996).

  • 310 {302} Zink v. First Niagara Bank, 18 F. Supp. 3d 363 (W.D.N.Y. 2014) (New York law requiring release of mortgage not preempted by the NBA); Santana v. CitiMortgage, Inc., 2006 WL 1530083 (Conn. Super. Ct. May 22, 2006) (Home Owners’ Loan Act (HOLA) did not preempt Connecticut statute requiring proper release of mortgage upon full payment and within a specified time period); Pinchot v. Charter One Bank, 792 N.E.2d 105 (Ohio 2003) (neither HOLA nor OTS regulation on preemption encompasses activity that necessarily occurs after the debt is satisfied).

  • 311 {303} Radatz v. Fed. Nat’l Mortg. Ass’n, 50 N.E.3d 527 (Ohio 2016) (statutory penalty of $250 for failure to record satisfaction within ninety days not collectable from Fannie Mae while Fannie Mae under conservatorship).

  • 312 {304} See § 3.12.2.2, infra.

  • 313 {305} Nicklaw v. Citimortgage, Inc., 839 F.3d 998 (11th Cir. 2016).

  • 314 {306} See Johnson v. Trott & Trott, P.C., 829 F. Supp. 2d 564 (W.D. Mich. 2011) (denying motion to dismiss FDCPA claim against foreclosure law firm when borrower alleged loan had been paid in full prior to initiation of nonjudicial foreclosure); Nationsbanc Mortg. Corp. v. Hopkins, 190 S.W.3d 299 (Ark. Ct. App. 2004) (denying Nationsbanc request for $77,393.78 in interest, costs, penalties, and attorney fees in foreclosure action on later mortgage when it failed to provide a timely release for previous mortgage; relief based on the “clean-hands” equitable doctrine).