|
Once a year or so, I revisit this subject. EVERY time
I write about loan pay-offs, I receive a few calls
that go something like this: “I wish I had read your
article two months ago; I have just had the exact
nightmare”.
If you are making payments on real estate, your
Note is either fully amortized or has a balloon
payment. Unfortunately, the average person pays off
either the final payment or the balloon payment
ASSUMING that “everything will be taken care of”.
This is usually true when dealing with a conventional
lender, but, unfortunately, usually NOT TRUE when
dealing with a private beneficiary. Imagine the
following scenario; it happens somewhere in California
EVERY DAY.
You purchased your home or units fifteen years ago
and the balloon payment is coming due. You have an
amortization schedule clearly showing the amount of
the last payment and you dutifully send in that
correct amount. You feel wonderful that this loan is
finally paid off and you own the property free and
clear! Eight years go by and you decide to sell the
property. You find a willing buyer, arrange a sale,
and open escrow. A week later escrow sends you a copy
of the Preliminary Title Report which shows your old
Note and Deed of Trust are still “Of Record”. You
assure everybody that that obligation was paid off and
try to find your canceled check from eight years ago.
Unfortunately, you could not find the check. It really
doesn’t matter because proof of payment is not the
issue, a “Deed of Reconveyance” is. You now try to
find the beneficiaries of the old Note, only to
discover that the husband died and the wife remarried
and moved to Alaska. Even with proof of payment, the
Trustee on the Deed of Trust will not reconvey the
Deed of Trust without the original documents AND the
beneficiary’s signature on a “Request for Full
Reconveyance”.
If you could have found the beneficiary, this theoretical
catastrophe could have been easily solved. Even if the
husband had died, the widow could “possibly” find the
original documents and provide the Trustee with a copy of
the husband’s |
death certificate. Even if the documents were not available,
the title company would accept a “Substitution of Trustee
and Deed of Reconveyance” signed by the widow.
On the assumption that the beneficiary cannot be found,
your only avenue, at this point, is to “Bond” around the
Deed of Trust. Let’s assume that the Deed of Trust was for
$150,000, the cost of that Bond would be “approximately”
$4,000-6,000. That’s right, I said THOUSANDS. To Bond
around an existing Deed of Trust, the Bond must be for twice
the amount of the Deed of Trust, i.e. $300,000. Bonding
companies usually charge between 1 to 2% of the amount of
the Bond.
The moral of this sad story is very simple. In the event
that you are paying off a conventional lender, i.e. bank or
credit union, merely call to verify the reconveyance
process. Find out when the reconveyance will be recorded.
Then make the final payment; get a receipt, and keep
checking every few weeks until you get a copy of the
reconveyance. If you cannot verify that the Deed of
Reconveyance has been RECORDED within four to six weeks
after the pay-off, have a real estate professional contact
the lender.
In the event that you are paying off a private party,
make certain that all parties are still alive; then make
certain that they have the ORIGINAL DOCUMENTS. Arrange to
exchange a cashier’s check for the ORIGINAL DOCUMENTS
(Note and Deed of Trust). Make certain that all parties sign
the back of the Deed of Trust, i.e. “Request for Full
Reconveyance”. In the event that all the parties AND
ORIGINAL DOCUMENTS are not available,immediately contact a
real estate attorney or knowledgeable real estate
professional.
After this article is published, I will count the number
of calls I get; it always happens!
Peter Rosenthal
VIP Trust Deed Company |