D R A F T
FOR DISCUSSION ONLY
UNIFORM MORTGAGE SATISFACTION ACT
___________________________________________________
NATIONAL CONFERENCE OF COMMISSIONERS
ON UNIFORM LAWS
___________________________________________________
For Drafting Committee Meeting May 14-16, 2004
UNIFORM MORTGAGE SATISFACTION ACT
WITH PREFATORY NOTE AND PRELIMINARY COMMENTS
Copyright © 2004
by
NATIONAL CONFERENCE OF COMMISSIONERS
ON UNIFORM LAWS
______________________________________________________________________________
The ideas, concepts and conclusions set forth in this draft, including the proposed statutory language and any comments or reporter’s notes, have not been reviewed, debated or approved by the National Conference of Commissioners on Uniform State Laws or the Drafting Committee. They do not reflect the views of the Conference and its Commissioners or the Drafting Committee and its Members and Reporter. Proposed statutory language may not be used to ascertain the intent or meaning of any promulgated final statutory proposal made by the National Conference of Commissioners on Uniform State Laws.
April 8, 2004
DRAFTING COMMITTEE ON UNIFORM MORTGAGE SATISFACTION ACT
EDWARD F. LOWRY, JR., 4200 N. 82nd St., Suite 2001, Scottsdale, AZ 85251, Chair
ELLEN F. DYKE, 2125 Cabots Point Lane, Reston, VA 20191
ROBERT L. MCCURLEY, JR., Alabama Law Institute, P.O. Box 861425, Tuscaloosa, AL 35486, Enactment Plan Coordinator
NEAL OSSEN, 21 Oak St., Suite 201, Hartford, CT 06106
ELWAINE F. POMEROY, 1415 SW Topeka Blvd., Topeka, KS 66612-1818
REGINA R. QUINN, Jackson State University, P.O. Box 17239, Jackson, MS 39217-0239
R. WILSON FREYERMUTH, University of Missouri-Columbia School of Law, 215 Hulston Hall, Columbia, MO 65211, Reporter
EX OFFICIO
FRED H. MILLER, University of Oklahoma, College of Law, 300 Timberdell Road, Room 3056, Norman, OK 73019, President
LANI LIU EWART, Suite 1800, Alii Pl., 1099 Alakea St., Honolulu, HI 96813, Division Chair
AMERICAN BAR ASSOCIATION ADVISOR
PATRICK MEARS, 200 Ottawa Ave., NW, Ste. 900, Grand Rapids, MI 49503-2393, American Bar Association Advisor
EXECUTIVE DIRECTOR
WILLIAM H. HENNING, University of Alabama School of Law, Box 870382, Tuscaloosa, AL 35487-0382, Executive Director
WILLIAM J. PIERCE, 1505 Roxbury Road, Ann Arbor, MI 48104, Executive Director Emeritus
Copies of this Act may be obtained from:
NATIONAL CONFERENCE OF COMMISSIONERS ON UNIFORM STATE LAWS
211 E. Ontario Street, Suite 1300
Chicago, Illinois 60611
312/915-0195
UNIFORM MORTGAGE SATISFACTION ACT
TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS AND GENERAL PROVISIONS
SECTION 103. MANNER OF GIVING A NOTIFICATION; EFFECTIVE DATE.
SECTION 104. DAY OF PERFORMANCE.
ARTICLE 2
SECURED CREDITOR TO RECORD SATISFACTION; LIABILITY FOR FAILURE
SECTION 201. PAYOFF STATEMENT: REQUEST AND CONTENT.
SECTION 202. PAYOFF STATEMENT: EFFECT
SECTION 203. SECURED CREDITOR TO SUBMIT SATISFACTION FOR
SECTION 204. FORM AND EFFECT OF SATISFACTION
SECTION 205. LIABILITY OF SECURED CREDITOR FOR FAILURE TO
SUBMIT SATISFACTION FOR RECORDING.
SECTION 206. LIMITATION ON SECURED CREDITOR’S LIABILITY.
SECTION 207. REINSTATEMENT OF SECURITY INSTRUMENT; LIABILITY FOR ERRONEOUS REINSTATEMENT.
ARTICLE 3
SATISFACTION BY AFFIDAVIT
SECTION 302. AFFIDAVIT OF SATISFACTION: NOTIFICATION TO SECURED CREDITOR
SECTION 303. AFFIDAVIT OF SATISFACTION: AUTHORIZATION
SECTION 304. AFFIDAVIT OF SATISFACTION: FORM
SECTION 305. AFFIDAVIT OF SATISFACTION: EFFECT.
SECTION 306. LIABILITY OF SATISFACTION AGENT.
ARTICLE 4
MISCELLANEOUS PROVISIONS
SECTION 401. UNIFORMITY OF APPLICATION AND CONSTRUCTION.
UNIFORM MORTGAGE SATISFACTION ACT
Prefatory Note
Complete payment of a mortgage loan typically extinguishes the lien of the mortgage. Because no evidence of that extinguishment automatically appears on the public land records, however, the continued presence of the mortgage on the records creates a practical problem for the owner of the land described in the mortgage. For example, if the owner has contracted to sell the home, the mortgagor cannot establish marketable title — and thus cannot compel the buyer to perform the contract — unless it can “clear” the existing mortgage document from the records. Likewise, if the owner is merely refinancing its existing mortgage obligation with another lender, the owner must be able to clear the existing mortgage from the records to assure the new mortgage lender of its expected priority.
Traditionally, the mortgagor cleared its title by having the mortgagee execute and record a document evidencing satisfaction of the mortgage, or by having the mortgagee make a marginal notation of satisfaction on the page of the public records containing the mortgage. Decades ago, it was somewhat plausible to expect that title clearance could occur roughly contemporaneously with a sale or refinancing of mortgaged land. Historically, local thrift institutions held mortgage loans in their portfolios until maturity or prepayment. Thus, when making full payment, a mortgagor could simply go to the office where the mortgagee had originated the loan and obtain the necessary documentation almost immediately. Even if the mortgagee did not maintain the loan documents on-site, the mortgagee could typically have the documents available at closing if it had sufficient advance notice of the closing of a sale or refinancing transaction. Alternatively, in jurisdictions in which attorneys handle real estate closings, mortgagees would often send an executed release to the attorney prior to closing, with instructions to record it only after making payment of the balance of the outstanding mortgage at closing.
Today, changes in the lending, title insurance, and closing services industries have complicated the payoff, discharge, and release of mortgage instruments. Most originating mortgage lenders no longer retain mortgage loans in their portfolio, as local thrift institutions traditionally did. Instead, most originating lenders transfer mortgage loans on the secondary market, thereby facilitating the eventual securitization of mortgage loans and the issuance of mortgage-backed securities. When the originating lender sells a mortgage loan, it will typically transfer the loan documents to the new assignee or to a loan servicer (the party who collects loan payments from mortgagors on behalf of the party holding the mortgage debt); this assignee or servicer may be located hundreds or thousands of miles from the mortgagor and the mortgaged land. In addition, the title insurance industry has experienced significant consolidation, with the emergence of large national title insurance companies that rely upon independent agents or other intermediaries to perform a wide variety of functions related to the closing of real estate transactions.
This separation of mortgagor, mortgagee, title insurer, and closing agent has greatly influenced customary practices regarding real estate closings, including the preparation and delivery of mortgage satisfaction documents for recording. Today, mortgagees typically do not produce a recordable satisfaction contemporaneously with the closing of a sale or refinancing. The geographical separation of the mortgagor, mortgagee, title insurer, and closing agent has contributed to an unfamiliarity or lack of trust among the persons handling a sale or refinancing transaction — making it less likely that the mortgagee would execute and deliver a release in anticipation of expected closing. Further, this geographical separation can result in delays in communication that may serve to extend the practical “gap” between the closing and the clearance of record title. This “gap” — which exists even when all persons in the transaction are acting in good faith — can sometimes be further exacerbated by poor practices or a failure to follow proper procedures.
Furthermore, obtaining the necessary satisfaction documentation is often complicated by a mortgagor’s uncertainty about the identity or location of the mortgagee. Over the past two decades, lenders have routinely merged or consolidated operations; similar consolidation has occurred among title insurers. By virtue of merger or consolidation, a residential mortgage previously held by a local lender in State A may now be held by a regional or national lender based in State B. Further, if the loan is serviced by a third party, the mortgagor may be unaware of the identity or location of the current holder of the mortgage. Moreover, transfer of mortgage servicing sometimes occurs. If the respective holders of a mortgage loan have transferred servicing responsibilities one or more times during a loan’s term, this may increase the difficulty in determining whether the appropriate person has already taken the steps necessary to prepare and record a satisfaction (which may result in unnecessary duplication of satisfaction requests). Finally, there is some concern that some mortgage lenders or closing agents, after having already been paid or having completed the disbursement functions related to a closing, may feel a diminished compunction to act quickly to provide prompt service (i.e., preparing and recording a satisfaction) for a now-“former” customer. These problems create additional “bureaucratic” delay for the mortgagor seeking a satisfaction and a clear record title.
At present, solving these practical problems forces the parties to incur additional transaction costs. Most frequently, parties use title insurance to address these title-clearance risks. For example, suppose Seller owns a home subject to a mortgage in favor of Lender One and contracts to sell the home to Buyer, with closing to occur June 1. Buyer plans to complete the purchase using the proceeds of a mortgage loan from Lender Two; in turn, Seller expects to use the sale proceeds to satisfy the mortgage loan to Lender One. Once Lender One’s mortgage is paid off, Lender Two will have its expected priority for its mortgage lien. But until Lender One’s mortgage is paid off, Lender Two bears a risk that full payment of the Lender One mortgage will not occur — either because someone associated with the transaction misappropriated the funds or because of a dispute about the outstanding balance of Lender One’s mortgage. Thus, as a condition of its obligation to make a mortgage loan to Buyer, Lender Two will insist upon a lender’s title insurance policy that insures both the validity and priority of its mortgage against the home. In this way, Lender Two shifts to the title insurer the potential priority risk that Lender Two faces because Lender One has not yet released its mortgage of record.
Likewise, the Buyer in this transaction faces a similar risk with respect to the satisfaction of Lender One’s mortgage. For example, if a closing agent misappropriates the closing proceeds and does not use them to satisfy Lender One’s mortgage, Lender One will not release its lien, and the Buyer’s title will thereafter be subject to the liens of both mortgages. As a result, a prudent Buyer should also obtain an owner’s policy of title insurance that provides affirmative coverage against the risk that the Lender One mortgage is not legally satisfied. Unfortunately, not all buyers obtain an owner’s policy of title insurance, or appreciate the risks sufficiently to appreciate the need for title insurance protection against this risk.
The Mortgagee’s Obligation to Record a Satisfaction: Timing and Consequences
At present, all 50 states have promulgated legislation that ostensibly requires a mortgagee to act promptly to provide title-clearing documentation following repayment of the mortgage debt. Because even the most conscientious mortgagee will have some delay in responding to mortgagor requests, existing state statutes typically allow a “grace period” in which to record a satisfaction. Unfortunately, existing state laws vary widely from state to state. Many impose time deadlines (in some cases as few as 7-10 days) that push the bounds of practicality as applied to the modern mortgage loan. Others permit grace periods (such as 90 days) that far exceed the time during which a reasonably conscientious mortgagee could act to record a satisfaction.
In addition, all 50 states permit an injured party to recover actual loss caused by the mortgagee’s failure to record a timely satisfaction, and most (but not all) states go further and impose a statutory civil penalty upon a noncompliant mortgagee. Theoretically, these sanctions should provide an economic incentive for the mortgagee to act promptly. Unfortunately, state laws vary dramatically, ranging from a proverbial “slap on the wrist” that provides no real economic incentive to the mortgagee (e.g., fines as low as $10 to $25) to a draconian penalty that would bestow a significant windfall upon the typical aggrieved party (e.g., in South Carolina, a penalty equal to the lower of one-half of the mortgage debt or $25,000).
State laws also differ substantially with respect to whether formal notification constitutes a precondition to the mortgagee’s liability for actual damages and/or statutory damages. In some states, the mortgagee is liable only if it failed to record a timely satisfaction following a formal demand by the owner of the mortgaged land. In others, the mortgagor need not make any demand in order to trigger the mortgagee’s potential liability.
This lack of uniformity is unfortunate, as it encourages national mortgage lenders to treat otherwise similarly-situated mortgagors differently. Perhaps not surprisingly, some national mortgage lenders act to “prioritize” the process of providing satisfactions on a state-by-state basis, depending upon a state’s grace period and applicable sanctions for noncompliance. As a result, these lenders tend to provide services first to customers in states with the most punitive statutes. In turn, this may prompt states to engage in a “race to the bottom” to increase the minimum sanction, in order to ensure preferential treatment of their own citizens. In fact, since 1989, at least eleven states have increased their minimum statutory damage for untimely satisfactions; no states have reduced it during that same period.
Another important area of state nonuniformity concerns the content and filing requirements for mortgage satisfaction documents. A national mortgage lender may have to generate satisfaction documents to comply with hundreds of different state and local requirements, both as to content and technical requirements. This nonuniformity provides a stark contrast to Article 9 of the Uniform Commercial Code, under which there exists a simple standard national form for a termination statement. Furthermore, many state mortgage satisfaction laws require the mortgagee to recite a great deal of information in the satisfaction document (such as, for example, a legal description of the mortgaged land) that is otherwise not practically necessary in order for a satisfaction document to serve a title-clearing function. Thus, post-closing delays in recording satisfactions often occur because a mortgagee has executed a satisfaction document and submitted it for recording on a timely basis, only to have the recorder of deeds reject the document for noncompliance with content or technical requirements that do not actually advance the notice function served by the recording system.
The Act attempts to ensure that mortgagees and their servicers have an appropriate incentive to act promptly to issue the appropriate documents needed to assist a landowner in clearing title to mortgaged real estate. At the same time, however, the Act recognizes that given the structure of today’s mortgage market, conscientious mortgagees and their servicers need a realistic period of time to confirm the full payment of the mortgage debt (e.g., clearance of payoff funds), to prepare a sufficient satisfaction, and to submit it to the appropriate recorder’s office.
The Act takes the view that a mortgage lender should not face liability for failure to record a timely satisfaction without first receiving notice and an opportunity to cure its failure (or to demonstrate its attempted compliance and agree to issue a duplicate satisfaction or authorize an appropriate person to do so). As a result, the Act provides that if a satisfaction of a mortgage does not appear of record within 30 days after the mortgagee has received payment of the secured obligation, the owner of the mortgaged land may make written demand upon the mortgagee. If the mortgagee fails to respond to that demand by either issuing a satisfaction or authorizing an appropriate person to do so within an additional 30 days thereafter, the Act permits the owner of the mortgaged land to recover statutory damages in addition to any actual loss incurred as a result of the mortgagee’s failure.
Furthermore, in order to minimize the potential for satisfaction documents to be rejected because they lack content that is otherwise unimportant, the Act provides a form of satisfaction document that contains only the minimal information necessary for a satisfaction to be appropriately indexed (and thereby serve to satisfy the notice function of the recording system). The Act requires that a recording officer cannot reject a submitted satisfaction because it lacks information beyond that specified by the Act’s simple form.
The Payoff Statement
Introduction. In most transactions, the mortgagor repays the mortgage debt prior to its originally scheduled maturity, when the mortgagor either sells the land or refinances the outstanding mortgage debt. In these transactions, the mortgagor typically asks the mortgagee to issue a “payoff statement” that identifies the outstanding balance of the mortgage debt. The mortgagor (or, more typically, a title insurer, attorney, lender, or other person facilitating the sale or refinancing) then uses the information contained in the payoff statement in order to remit the specified outstanding balance to the mortgagee.
A mortgagor typically does not have difficulty obtaining a prompt payoff statement from a conscientious mortgage lender or its servicer. Nevertheless, state statutes do vary somewhat with respect to whether the lender has an affirmative duty to provide a payoff statement, the time period in which the lender must respond to such a request (periods range from 5 days in some states to up to 10 or more in others), the persons entitled to make such a request, the form or content of a payoff statement, and the consequences for a mortgage lender that fails to respond in a timely manner. With the increasing development of the national mortgage market, the Act attempts to promote uniformity by providing that a mortgagee has an affirmative duty to provide a payoff statement within 10 days of a proper request. The Act specifies minimal content for a payoff statement to assure that the recipient can use the statement to determine the amount of each type of fee or charge that comprised the payoff amount. The Act also seeks to clarify the persons that may request a payoff statement as well as the mortgagee’s ability to charge a fee for the issuance or delivery of a payoff statement.
Reliability. If a payoff statement is accurate, payment of the stated amount legally satisfies the mortgage debt — which in turn triggers the mortgagee’s obligation to issue a satisfaction of the mortgage. If the payoff statement is incorrect, however, the effect of the mortgagor’s payment is less clear. As a matter of law, the mortgagor generally must satisfy the full balance of the secured obligation in order to extinguish the mortgage. If the amount specified in the payoff statement was too low, the mortgagor’s payment would not satisfy the entire mortgage obligation.
Nevertheless, the parties to a sale or refinancing transaction typically rely upon the payoff statement in completing that transaction. For example, a person buying the mortgaged land from the mortgagor may choose to perform the contract believing that the mortgagee’s receipt of the amount specified in the payoff statement will extinguish the mortgage debt. In this situation, the buyer will argue that the mortgagee should be equitably estopped from denying the accuracy of the payoff statement. If a court recognizes this estoppel theory, then the mortgagee can still collect the remaining balance of the debt from the mortgagor as a personal obligation, but cannot enforce the lien of the mortgage against the buyer who relied upon the payoff statement — in effect, estoppel would render the mortgage unenforceable against the buyer (or the buyer’s mortgage lender).
Consistent with this well-established principle, the Act provides that a mortgagee that sends a payoff statement that contains an erroneous payoff amount is precluded from denying the accuracy of the payoff amount as against any person who has reasonably and detrimentally relied upon the erroneous payoff amount.
In some circumstances, doubt about the reasonableness of a person’s reliance on a payoff statement may result from language in the payoff statement that attempts to qualify the statement’s reliability. For example, a payoff statement may state that it is subject to being corrected by the mortgagee for a specified period of time (which may extend beyond the scheduled closing date of a sale or refinancing transaction). The Act provides that a mortgage lender may not qualify the accuracy of a payoff amount or state that it is subject to change before the payoff date unless the payoff statement provides information sufficient to permit the recipient to request and obtain, at no charge, an updated payoff amount during normal business hours on the payoff date or the immediately preceding business day. If the mortgage lender issues an updated payoff amount which turns out to be incorrect, the lender is estopped from enforcing the mortgage against a third person who reasonably and detrimentally relies upon the accuracy of the updated payoff amount.
“Self-Help” Satisfaction
While each state has enacted legislation obligating mortgage lenders to record timely mortgage satisfactions, not all states have provided effective remedial mechanisms to permit the owner of the land to clear its title if the mortgagee has failed to respond to a proper request. When title to real estate remains clouded by an unsatisfied mortgage, all states expressly or implicitly authorize the aggrieved party to bring a judicial action against the mortgagee to obtain an order or declaration quieting title. Unfortunately, this remedy can be cumbersome and time-consuming, given the procedural delays and docket congestion attendant to civil litigation in many jurisdictions.
An increasing number of states have enacted statutes authorizing a nonjudicial or “self-help” satisfaction procedure. Under these state procedures, certain parties that facilitated the closing of a sale or refinancing transaction can take steps to clear the title if, for whatever reason, a satisfaction document does not appear of record in a timely fashion. Typically, these statutes authorize the designated agent to execute and record an affidavit demonstrating that the mortgagee has received payment of the balance of the obligations as specified in a payoff statement, but that no satisfaction appears of record. Under these statutes, the designated agent cannot record this affidavit without first giving the mortgagee notice and an opportunity to respond (either by recording a satisfaction if the secured obligation has been paid or, if not, by objecting that the secured obligation remains unsatisfied). The recording of this affidavit then constitutes the statutory equivalent of a satisfaction of the mortgage.
Slightly more than one-half of the states have adopted a “self-help” procedure, but state statutes vary widely in both scope and specifics. For example, some statutes limit the availability of a “self-help” satisfaction based upon the mortgage amount or the type of mortgage; others contain no such limitations. State statues vary widely as to person(s) authorized to record an affidavit of satisfaction. Some states permit only a licensed title insurer to perform this function; other states permit a licensed attorney to do so, and yet others permit both to file the necessary affidavit. A few states authorize such an affidavit to be filed by a refinancing lender or the lender for a buyer. Finally, state statutes also vary widely both as to the content of the affidavit and the duration of the grace period during which the mortgagee can either record a satisfaction on its own or object to the recording of a satisfaction.
Unfortunately, the existing state law “self-help” procedures are rarely used, for two reasons. First, most of the existing “self-help” statutes have notification and grace periods that render them of little use in the majority of cases in which a mortgage is paid off in the context of a sale or refinancing transaction. Under most of the existing “self-help” statutes, these notification and grace periods mean that an affidavit of satisfaction cannot be recorded until (at a minimum) 90 to 120 days has passed following payment. Even if the mortgagee delays in executing and recording a satisfaction document, this delay typically does not continue for the relatively long periods contained in most state “self-help” procedures.
Second, the structure of the existing “self-help” statutes renders them of little value in the more problematic case in which the mortgage was paid off at a previous date. For example:
• Some of the state “self-help” statutes only apply where the closing agent specifically facilitated the payoff of the mortgage. See, e.g., Del. Code Ann. tit. 25, § 2120(a) (attorney may prepare and record affidavit of satisfaction where attorney “paid in full or caused to be paid in full a debt owed by any debtor to any creditor holding a mortgage securing such debt”). Under these statutes, “self-help” satisfaction would be unavailable to a landowner that paid off a mortgage in the ordinary course at maturity or in a transaction not facilitated by a person eligible to prepare and record the necessary affidavit.
• Most state “self-help” statutes require that closing agent file an affidavit stating, under penalty of perjury, that the mortgagee provided a payoff statement with respect to the secured obligations and that the mortgagee has received payment of the secured obligations in accordance with the payoff statement. In many cases, the closing agent must even attach a copy of the payoff statement and evidence of payment to the affidavit. See, e.g., Vt. Stat. Ann. tit. 27, § 464a(a), (c). These requirements render the statute effectively useless to a landowner that paid off a mortgage in the ordinary course at maturity.
• Finally, the language of many of the state “self-help” statutes renders them useless in the precise situation in which they could be most useful for title clearing purposes — where the secured creditor to whom payment was made is now defunct. Most of the state “self-help” statutes require that the closing agent file an affidavit stating, under penalty of perjury, that the mortgagee has received written notification of the closing agent’s intention to prepare and record an affidavit evidencing the satisfaction of the secured obligations. See, e.g., Vt. Stat. Ann. tit. 27, § 464a(a). Where the secured creditor who received payment is now defunct and a closing agent cannot unmistakably identify the financial institution that succeeded to the rights of the defunct secured creditor, compliance with such stringent affidavit requirements becomes impossible.
The Act adopts a “self-help” satisfaction procedure, but structures that procedure in a fashion designed to make the procedure more functional, especially in cases involving a defunct mortgage lender. Under the Act, a “satisfaction agent” may prepare and record an affidavit of satisfaction, but only after first giving notification to the mortgagee and giving the mortgagee 30 days to record a satisfaction (or authorize an appropriate person to do so) or object that the secured obligations remain unsatisfied. In the event that the mortgagee raises a timely objection, the self-help procedure is unavailable. If the mortgagee fails to raise a timely objection, the satisfaction agent may record an affidavit of satisfaction, which affidavit constitutes a satisfaction of the mortgage — unless the satisfaction agent receives notification that the mortgage has been assigned and identifying the name and address of the assignee. In that event, the self-help procedure is unavailable until the satisfaction agent has provided the necessary notification and grace period to the identified assignee.
In the event that a satisfaction agent wrongly records an affidavit of satisfaction, the satisfaction agent is liable to the mortgagee for the actual loss caused by the recording of the affidavit. For this reason, the Act limits the class of “satisfaction agents” to licensed attorneys and title insurers, against who an injured mortgagee would have a reasonable prospect of recovery in the event an affidavit of satisfaction was improper. Nevertheless, if the satisfaction agent records a satisfaction in reasonable reliance upon evidence of payment of the payoff amount as specified in a reliable payoff statement, the mortgagee would be estopped to recover from the satisfaction agent under the Act.
UNIFORM MORTGAGE SATISFACTION ACT
DEFINITIONS AND GENERAL PROVISIONS
SECTION 101. SHORT TITLE. This [act] may be cited as the Uniform Mortgage Satisfaction Act.
SECTION 102. DEFINITIONS. In this [act]:
(1) “Address for notification” means the most recent address for the purpose for which notification is given, as provided in a document by the intended recipient of the notification to the person giving the notification. If the person giving the notification has reason to know of a more accurate address, the term means that address.
(2) “Day” means calendar day.
(3) “Document” means information that is inscribed on a tangible medium or that is stored in an electronic or other medium and is retrievable in perceivable form.
(4) “Entitled person” means the landowner or other person liable for payment or performance of the obligation secured by the real property described in a security instrument.
(5) “Good faith” means honesty in fact and the observance of reasonable commercial standards of fair dealing.
(6) “Landowner” means a person that owns the right of redemption prior to sale in the real property described in a security instrument.
(7) “Notification” means a document containing information required under this [act] and signed by the person required to provide the information.
(8) “Organization” means a person other than an individual.
(9) “Payoff amount” means the sum necessary in order to satisfy a secured obligation.
(10) “Payoff statement” means a document containing the information specified in Section 201(c).
(11) “Person” means an individual, corporation, business trust, estate, trust, partnership, limited liability company, association, joint venture, public corporation, government, or governmental subdivision, agency, or instrumentality, or any other legal or commercial entity.
(12) “Recording data” means the date and [book and page number] [document number] that indicate where a document is recorded in the appropriate governmental office under [the recording act of this state].
(13) “Secured creditor” means a person that holds a security interest or that is authorized both to receive payments on behalf of a person that holds a security interest and to record a satisfaction of the security instrument upon receiving full performance of the secured obligation.
(14) “Secured obligation” means an obligation the payment or performance of which is secured by a security interest.
(15) “Security instrument” means an agreement, however denominated, that creates or provides for a security interest and whether or not it also creates or provides for a lien on personal property.
(16) “Security interest” means an interest in real property located in this state, created by a security instrument, securing payment or performance of an obligation.
(17) “Sign” means, with present intent to adopt or accept a document:
(A) to execute or adopt a tangible symbol; or
(B) to attach to or logically associate with the document an electronic sound, symbol, or process.
(18) “State” means a state of the United States, the District of Columbia, Puerto Rico, the United States Virgin Islands, or any territory or insular possession subject to the jurisdiction of the United States.
(19) “Submit for recording” means to submit a document complying with applicable legal standards, with required fees and taxes, to the appropriate governmental office under [the recording act of this state].
Preliminary Comments
Introductory comment to definitions. Under American law and customary practice, there are a variety of different documents — such as the mortgage, the deed of trust, the deed to secure debt (to name but a few) — by which parties may use an interest in real property as security for debts and obligations. Many existing state laws governing the satisfaction of these documents use the traditional terms “mortgage,” “mortgagor,” and “mortgagee.” The Act does not use these terms, so as to dispel any notion that the Act’s coverage is limited only to a “mortgage.” Instead, the Act uses terms that have no common law or statutory roots tying them to any particular form. Instead of terms such as “mortgage” or “deed of trust,” the Act substitutes the general term “security instrument.” In place of “mortgagee” or “beneficiary,” the Act uses “secured creditor.” The interest in real property that conveyed to the secured creditor is defined as a “security interest” rather than as a “lien” or as “title.” Thus, for purposes of the Act it is irrelevant whether a state follows the “lien theory” or “title theory” of mortgage law.
The Act does not seek to define “real property,” but leaves the parameters of that term to other state law.
1. “Address for notification.” Whenever the Act requires a person to give notification to another person — e.g., when a landowner must give notification and opportunity to cure to a secured creditor who has failed to record a timely satisfaction under Section 203(b) — the notification is given at the intended recipient’s address for notification. This address is the most recent address, for the purpose for which notification is given, as provided in a document by the intended recipient of the notification to the person giving the notification. This definition reflects the business practices of mortgage lenders, who sometimes specify different addresses for notification depending upon the purpose of the notification. For example, a lender may require that requests for payoff statements be directed to one address (e.g., the address of the lender’s loan servicer), while other requests for information or general legal notices might be directed to a different address. Subsection (1) thus recognizes that the proper address for notification may vary depending upon the purpose of the particular notification.
In any event, if the person giving the notification has reason to know of a more accurate address, then the term means that address.
2. “Day.” The definition of “day” is identical to that used in Section 102(3) of the Uniform Nonjudicial Foreclosure Act. Days must be counted to determine the expiration of the various grace periods prescribed by the Act. All days including Saturdays, Sundays, and holidays are counted. Nevertheless, Section 104 provides that if the final day for giving a required notification would fall on a Saturday, Sunday, or legal holiday, that notification may properly be given on the next weekday that is not a legal holiday.
3. “Document.” The definition of “document” is media-neutral and is consistent with the definition of the term “record” as used in Section 2(7) of the proposed Uniform Real Property Electronic Recordation Act. Because this Act uses the term “record” in its customary fashion under real estate law — i.e., as a verb to describe the act of filing an instrument of conveyance with the recorder’s office — the Act does not use the term “record” as a noun, and instead uses the term “document.”
4. “Entitled person.” Section 201 of the Act permits an “entitled person” to request a payoff statement specifying the payment necessary to satisfy the lien of a security instrument. The term “entitled person” includes both the landowner at the time of the payoff statement request and any person liable on the secured obligation (including the original obligor, an assuming grantee, or any guarantor).
5. “Good faith.” This definition is identical to the definition contained in the Uniform Commercial Code. Generally, the Act imposes liability (both for statutory and actual damages) upon a secured creditor who fails to record a satisfaction within a timely period following notice and opportunity to cure. Section 206(a). However, a secured creditor is not liable if it has established a reasonable procedure for recording satisfactions of security instruments, has complied with that procedure in good faith, and was unable to record because of circumstances beyond its control. Section 206(b).
6. “Landowner.” Under the “title theory” of mortgages, a mortgagee holds legal title to the mortgaged premises. By contrast, under the “lien theory” of mortgages followed in the majority of American jurisdictions, the mortgagee (or “secured creditor” under the Act) holds only a security interest in the mortgaged premises. The Act defines the term “landowner” to mean the owner of the right to redeem the real property described in the security instrument prior to sale. The Act defines the term in this fashion so as to make it irrelevant whether a particular state adopting the Act follows title theory or lien theory. Furthermore, this definition of “landowner” makes it irrelevant whether a particular jurisdiction uses the deed of trust rather than the mortgage. Even though the trustee under a deed of trust may technically hold legal title to the premises, the beneficiary under that deed of trust holds the equitable right of redemption and thus would be the “landowner” within the meaning of the Act.
The identity of the “landowner” may vary in this Act depending upon context. For example, suppose that Bank holds a mortgage on Blackacre, a parcel of real property owned by X. X has entered into a contract to sell Blackacre to Y. For the purpose of obtaining a payoff statement with respect to the balance of the mortgage obligation, X is the “landowner” within the meaning of the Act, even though X seeks the payoff statement in anticipation of a sale of the real property to Y. By contrast, assume that X has now performed the contract of sale by deeding the real property to Y. If Bank fails to record a timely satisfaction of its mortgage as required by this Act, Y is now the “landowner” for the purpose of giving notification to the Bank of its failure, or for the purpose of recovering any damages on account of Bank’s failure.
7. “Notification.” In several places, the Act requires one person to give “notification” to another. Such a notification must be in the form of a “document” (Section 102(3)), must contain the information required by the specific provision of the Act, and must be “signed” (Section 102(15)) by the person required to provide the notification.
8. “Organization.” This is the boilerplate definition of the term as used in uniform acts.
9. “Payoff amount” and “payoff statement.” Most mortgage loans are paid off prior to maturity, either upon a transfer of the mortgaged land or upon a refinancing by the landowner. In these situations, the mortgage lender customarily issues a payoff statement specifying a payoff amount, or the payment necessary to satisfy the outstanding balance of the mortgage loan. Under the Act, the secured creditor must issue a payoff statement complying with Section 202(a) within 10 days after receiving a request from an “entitled person” as defined in Section 201.
10. “Person” includes both natural persons (individuals) and all forms of legally recognized public and private organizations.
11. “Recording data.” This definition is similar to that used in Section 102(15) of the Uniform Nonjudicial Foreclosure Act, and refers to the customary way of identifying the precise place where a document is recorded in the jurisdiction. Some jurisdictions customarily refer to book and page number, some to a document number, and others to other types of designations.
12. “Secured creditor” means a person that holds a security interest. The term includes a person who is servicing the debt evidenced by a security instrument, if that person is also authorized by the secured creditor to record a satisfaction of the security instrument upon receiving full payment or performance of the secured obligation.
13. “Security instrument.” This definition is identical to that used in Section 102(19) of the Uniform Nonjudicial Foreclosure Act, and recognizes that the title given to a document by its parties is not dispositive of whether the document is a security instrument. Instead, the key issue is whether the document creates a security interest.
For purposes of the Act, a “security instrument” must cover real property, although it may additionally cover personal property. A secured creditor’s compliance with the Act (e.g., by recording a timely satisfaction of a security instrument following full performance of the secured obligations) may not fully discharge the secured creditor’s legal obligations with respect to a secured transaction that also covers personal property. In such a case, the secured creditor may also have to file a Uniform Commercial Code termination statement with respect to the personal property collateral. U.C.C. § 9-513.
The Act does not specifically address the extent to which its provisions apply to an installment land contract or contract for deed. In those states where existing statutory provisions or judicial decisions have equated a contract for deed and a mortgage, the contract for deed would constitute a “security instrument” and the provisions of this Act would apply. In other states, the Act leaves to judicial resolution the extent to which its provisions would apply to the installment contract vendor and vendee and their respective successors.
14. “Security interest.” Under the Act, a security interest arises in any transaction, regardless of its form, in which a person receives or retains an interest in real property for the purpose of securing an obligation owed to that person. Certain types of interests in land, such as judgment liens and mechanics liens, arise only by statute or operation of law, and these liens do not constitute “security interests” within the meaning of the Act. Accordingly, the Act does not address the obligation of a judgment lien holder to record evidence of the satisfaction of that judgment lien.
15. “Secured obligation.” The term “secured obligation” covers all obligations the performance of which are reducible to monetary terms and secured by a security interest.
16. “Sign.” This definition is media-neutral and comparable to that contained in Uniform Commercial Code § 2-103(1)(p).
17. “State.” This definition is the boilerplate definition of the term as used in uniform acts.
18. “Submit for recording.” The Act requires a secured creditor to submit for recording a sufficient satisfaction of the security instrument upon full payment of the secured obligation. Section 203. The Act also permits a “satisfaction agent” to submit for recording an affidavit of satisfaction if the secured creditor has failed to submit for recording a satisfaction in a timely fashion following notice and an opportunity to cure such failure. Section 303. To “submit for recording” means that the person has submitted a document that has complied with the appropriate legal requirements for the document submitted, along with required fees and taxes, to the appropriate recording official.
SECTION 103. MANNER OF GIVING A NOTIFICATION; EFFECTIVE DATE.
(a) A person gives a notification by:
(1) depositing it in the mail or with any commercially reasonable delivery service, properly addressed to the recipient’s address for notification, with postage or cost of delivery provided for;
(2) sending it by facsimile transmission or electronic mail to the recipient’s address for notification, but only if the recipient agreed to receive notification in that manner; or
(3) causing it to be received within the time that it would have been received if properly given under paragraph (1).
(b) A notification is effective:
(1) the day after the day it is deposited with a commercially reasonable delivery service for overnight delivery;
(2) three days after the day it is deposited with the United States Postal Service, first-class mail with postage prepaid, or with a commercially reasonable delivery service for delivery other than by overnight delivery;
(3) the day the notification is given, if given under subsection (a)(2); or
(4) the day it is received, if given by a method other than as provided in subsection (a)(1) or (a)(2).
Preliminary Comments
1. This section specifies the methods for giving any notification required by the Act. Generally speaking, notices required by the Act may be transmitted by registered or certified mail, regular mail, or commercial delivery services. Proper dispatch, not receipt, satisfies the obligation to give notification.
Often, customary practice in real estate transfer or refinancing transactions will involve notification by facsimile transmission. For example, a secured creditor may provide a payoff statement by facsimile transmission (often at the specific request of the landowner or closing agent). Subsection (a)(2) permits a person to give notification by facsimile transmission if the intended recipient has agreed (either in the loan documents or otherwise) to receive notification in this manner. For example, if the landowner requests that the secured creditor provide a payoff statement by facsimile transmission, this request will authorize the secured creditor to provide the notification by facsimile transmission even if the security instrument itself does not so provide. Likewise, if a secured creditor maintains a website indicating that requests for payoff statements may be directed to a particular fax number, or provides correspondence to a borrower indicating that requests for payoff statements may be directed to a particular fax number, the secured creditor has agreed to receive requests for payoff statements by facsimile transmission.
The Act also permits a person to give notification by electronic mail, but again only where the intended recipient had agreed to receive notification by electronic mail.
Subsection (a)(3) also permits a person to give notification in any manner that would result in the notification being received within the time that the recipient would have received it if the notification had been given by mail or commercial delivery service. This subsection would permit a person to give a notification by means of physical delivery to its intended recipient.
The person asserting that notification was given has the burden of proof that notification was given in accordance with the provisions of Section 103.
2. The Act requires a landowner to give a secured creditor notification and a 30-day cure period before the landowner can recover statutory and/or actual damages from the secured creditor that fails to record a satisfaction in a timely manner. Sections 203(b), 205(a). Likewise, before a closing agent may execute and record an affidavit of satisfaction when the secured creditor has failed to record a satisfaction in a timely manner, the closing agent must give the secured creditor notification and a 30-day period in which to fulfill its obligation to record that satisfaction or otherwise object to the recording of a satisfaction. Section 302(a). To avoid uncertainty about the expiration of these grace/cure periods, the Act provides that these periods shall commence upon the “effective date” of a notification. Subsection (b) specifies the effective date of a particular notification, determined by reference to the approximate delivery time for a particular manner of delivery.
SECTION 104. DAY OF PERFORMANCE. If this [act] or a notification given pursuant to this [act] requires performance on or by a certain day and that day is a Saturday, Sunday, or legal holiday under the laws of this state or the United States, the performance is sufficient if performed on the next day that is not a Saturday, Sunday, or legal holiday.
Legislative note: This section may be omitted if the jurisdiction has in force a general statute with substantially the same effect.
SECURED CREDITOR TO RECORD SATISFACTION; LIABILITY FOR FAILURE
SECTION 201. PAYOFF STATEMENT: REQUEST AND CONTENT.
(a) An entitled person or an authorized agent of an entitled person may give to the secured creditor a notification requesting a payoff statement for a specified date not more than 30 days after the notification is given. The notification must contain:
(1) the entitled person’s name;
(2) the name of the entitled person’s authorized agent, if the notification requests that the statement be sent to the agent;
(3) the address to which the creditor must send the statement; and
(4) sufficient information to enable the creditor to identify the secured obligation and the real property encumbered by the security interest.
(b) If the notification under subsection (a) directs the secured creditor to send the payoff statement to an authorized agent of the entitled person, the secured creditor may presume that the agent is so authorized and must send the statement to the agent, unless the secured creditor has reason to know that the entitled person has not authorized the request.
(c) Within 10 days after the effective date of a notification that complies with subsection (a), the secured creditor shall issue a payoff statement and send it to the entitled person or the authorized agent in the manner prescribed in Section 103 for giving a notification. Sending a payoff statement to the entitled person or the authorized agent precludes a claim that the notification failed to satisfy the requirements of subsection (a). The payoff statement must contain:
(1) the day on which it was prepared and the payoff amount as of that day, including an amount by type of each fee, charge, or other sum included within the payoff amount;
(2) the information reasonably necessary to calculate the payoff amount as of the requested payoff date, including the per diem interest amount; and
(3) the payment cutoff time, if any; the address or place where payment must be made; and any limitation as to the authorized method of payment.
(d) A secured creditor may not qualify a payoff amount or state that it is subject to change before the payoff date unless the payoff statement provides information sufficient to permit the entitled person or that person’s authorized agent to request an updated payoff amount at no charge, and to obtain that updated payoff amount during the secured creditor’s normal business hours on the payoff date or the immediately preceding business day.
(e) An entitled person may request one payoff statement without charge during any six-month period. A secured creditor may charge a fee of [$25] for each additional request for a payoff statement during that six-month period. However, a secured creditor may not charge any fee for providing or delivering an updated payoff amount under subsection (d) or a corrected payoff statement under Section 202(a).
(f) If the entitled person requests that the secured creditor send the payoff statement by means other than first-class mail, the secured creditor may charge a reasonable fee for the requested manner of delivery.
(g) A secured creditor may include in a payoff statement any fees authorized under this section.
(h) If a secured creditor fails to send a timely payoff statement when required to do so by this section, the creditor is liable to the entitled person for the actual loss caused by the failure, reasonable attorney’s fees and costs, and the additional sum of [$500]. A recipient of a notification under Section 201(a) that does not claim any interest in the secured obligation has no duty to send a payoff statement.
Preliminary Comments
1. Most mortgage loans are paid off prior to maturity, either upon a transfer of the mortgaged land or upon a refinancing by the landowner. In these situations, the mortgage lender customarily issues a payoff statement, specifying the payment needed to satisfy the outstanding balance of the mortgage loan. Sections 201 and 202 address the nature and scope of the mortgage lender’s obligation to issue a payoff statement, the contents and effect of such a statement, and the consequences of the mortgage lender’s failure to issue such a statement.
2. As discussed in the comments to Section 102, the identity of the terms “landowner” and “entitled person” under the Act is contextual. In this context, the “entitled person” is the party who owns the mortgaged land at the time of the request for a payoff statement. If a payoff statement is being requested in conjunction with an upcoming sale or transfer of the mortgaged land, the “landowner” would be the seller/transferor, not the buyer/transferee.
3. Consistent with the principles of agency law, an entitled person under this section may act through any authorized agent acting on the entitled person’s behalf. For example, if Seller has contracted to sell mortgaged land to Buyer, and Seller has authorized Attorney to represent her in the transaction, Attorney may properly request a payoff statement on Seller’s behalf. Likewise, if Buyer’s attorney, title insurer or settlement agent will be handling the closing and disbursement of funds, Seller may authorize Buyer or Buyer’s agent to request a payoff statement under this section (even though Buyer’s attorney, title insurer, or settlement agent would not constitute the Seller’s agent for other purposes).
Potential concerns arise with respect to the privacy of financial information, such as the outstanding balance of a mortgage loan, where the secured creditor is disclosing that information to someone other than the obligor. Subsection (b) seeks to provide some comfort for the secured creditor, allowing the secured creditor to presume that the requesting person is authorized to make the request on behalf of the entitled person, absent reasonable grounds to believe that the request is unauthorized.
4. The Act permits a landowner or a person liable for payment or performance of the secured obligation (such as a guarantor, or a predecessor in title who was the original mortgagor) to obtain a payoff statement, either acting directly or through an authorized agent. In some circumstances, there may be other persons who want to obtain payoff information. For example, in the context of a default under a senior mortgage, a junior lienholder may wish to obtain payoff information regarding the senior mortgage in order to evaluate what steps the junior lienholder should take to protect its interest in the mortgaged land. Under the Act, the junior lienholder would have the right to obtain a payoff statement as an agent of the landowner if the landowner has so authorized, either in the loan documents evidencing the junior lien or otherwise.
5. An entitled person may request a payoff statement by giving a notification containing such a request in the manner specified by Section 103. The notification must identify the proposed payoff date, which cannot be more than 30 days following the date of the notification. The notification must provide the information required by subsection (a); however, as subsection (c) makes clear, the secured creditor’s delivery of a payoff statement precludes any later claim by the creditor that the notification failed to comply with subsection (a).
6. Because mortgage loans may vary significantly in their terms and conditions, the Act does not specify a particular form that a payoff statement must take in order to satisfy this section. Instead, subsection (c) provides certain information that the secured creditor must include in order to comply with its obligation to deliver a payoff statement. The payoff statement must enable the entitled person to ascertain how the secured creditor calculated the payoff amount. Accordingly, the Act requires that the payoff statement must reflect, by type, each item, fee or charge that comprises the balance of the secured obligation. For example, if the borrower had incurred several individual late payment charges, the secured creditor could group those charges together under a heading entitled “Late Charges.” The payoff statement must also include any specified payment cutoff time (i.e., the time after which the borrower will accrue another day’s interest on the secured obligation) and any limitations upon the authorized method of payment, as well as the appropriate address or place for payment.
The secured creditor may include other information beyond that specified in subsection (c), but that additional information cannot include disclaimers or other language intended to defeat the ability of the entitled person to rely generally upon the accuracy of the payoff amount. Of course, it is possible (if not likely) that the balance of the secured obligation may change between the date that a secured creditor issues a payoff statement and the proposed payoff date. Such a change could occur for a variety of reasons — e.g., because of a change in the applicable interest rate (either because the mortgage note bears a variable rate or includes a provision for default interest), because the lender had to advance additional funds to protect its security, or because the lender incurred other costs for which the obligor bears responsibility under the terms of the loan documents. Subsection (d) does permit the secured creditor to issue a payoff statement providing that the balance may be subject to change prior to the payoff date, but only if the payoff statement provides sufficient information to permit the entitled person to obtain a reliable updated payoff amount on the payoff date or the immediately preceding business day (e.g., by telephone, facsimile transmission, or electronic mail).
7. If the secured creditor fails to issue a timely payoff statement, subsection (h) permits the entitled person to recover any loss caused by the secured creditor’s failure, subject to ordinary rules of pleading and proof. In addition, subsection (h) provides a minimum statutory damage recovery for the entitled person. This subsection is patterned on U.C.C. Section 9-210(f) and ensures that the secured creditor’s nondelivery of a payoff statement will generally result in liability regardless of any injury that may have resulted.
Section 206 provides that if the secured creditor has established a reasonable procedure for complying with its obligation to issue payoff statements, has complied with that procedure in good faith, and was unable to satisfy its obligation because of circumstances beyond its control, the secured creditor is not liable despite its noncompliance with this section.
In some cases, an entitled person may direct a request for a payoff statement to a creditor that claims no interest in the secured obligations. Subsection (e) makes clear that such a creditor has no duty to deliver a payoff statement.
8. Subsection (e) provides that the entitled person may receive one payoff statement without charge during any six-month period, but permits the secured creditor to impose a fee for issuing an additional payoff statement during that six-month period. Subsection (e) does clarify, however, that the secured creditor cannot impose any fee for sending a corrected payoff statement or for updating a qualified payoff statement issued under subsection (d).
Under subsection (a), a payoff statement would become ineffective 30 days after it was issued. After that time, the entitled person could not compel the secured creditor to provide a free updated payoff amount under subsection (e).
Subsection (f) does allow the secured creditor to impose a reasonable fee if the entitled person requests expedited delivery of a payoff statement (i.e., delivery by means other than first-class United States mail). Subsection (g) permits the secured creditor to include in the payoff statement any permissible fees for issuance or expedited delivery of a payoff statement.
SECTION 202. PAYOFF STATEMENT: EFFECT.
(a) If a secured creditor determines that the payoff amount it provided in a payoff statement was inaccurate when provided or has become inaccurate, the creditor may send a corrected payoff statement. If the entitled person or that person’s authorized agent receives a corrected payoff statement before making payment, the corrected statement supersedes an earlier statement.
(b) A secured creditor who sends a payoff statement containing an erroneous payoff amount is precluded from denying the accuracy of the payoff amount as against any person who has reasonably and detrimentally relied upon the erroneous payoff amount.
(c) Nothing in this Act precludes a secured creditor from recovering any sum that it failed to include in the payoff amount from any person liable for payment of the secured obligation.
Preliminary Comments
1. The secured creditor may discover, after issuing a payoff statement, that it erroneously understated the outstanding balance of the secured obligations. Subsection (a) permits the secured creditor to issue a corrected payoff statement that supersedes the erroneous statement.
2. Generally speaking, the secured creditor must submit for recording a satisfaction of a security instrument only after full payment or performance of the obligation secured by the lien of that instrument. Section 203(a). If the secured creditor erroneously understates the payoff amount and does not correct it, however, this error may mislead a buyer or refinancing lender to complete a sale or refinancing transaction. Such a buyer or refinancing lender may pay or advance the amount stated in the payoff statement in reliance upon its accuracy.
In these circumstances, the Act does not require the secured creditor to submit for recording a satisfaction if the secured obligation remains unsatisfied. Nevertheless, subsection (b) makes clear that courts may exercise their equitable authority to preclude the secured creditor from enforcing the security instrument against a person who reasonably and detrimentally relied upon its accuracy. Even if the secured creditor is precluded from enforcing the security instrument, however, subsection (c) makes clear that the secured creditor can still recover the balance of the secured obligation from any person liable for that obligation under law other than this Act.
3. Sometimes, the secured creditor may erroneously overstate the necessary payoff amount. When such an error occurs, the secured creditor does not face liability under this section for issuing a payoff statement containing an erroneous payoff amount. However, if the entitled person tenders payment of the correct balance of the secured obligation, then the Act obligates the secured creditor to submit for recording a satisfaction within 30 days.
SECTION 203. SECURED CREDITOR TO SUBMIT SATISFACTION FOR RECORDING.
(a) A secured creditor shall submit for recording a satisfaction of a security instrument within 30 days after the creditor receives full payment or performance of the secured obligation. If a security instrument secures a line of credit or future advances, the secured creditor must submit for recording a satisfaction of the security instrument only if the secured creditor has also received a notification requesting the creditor to terminate the line of credit or containing a statement sufficient to terminate the effectiveness of the provision for future advances in the security instrument.
(b) If a secured creditor has not submitted for recording a satisfaction within the period specified in subsection (a), the landowner may give to the creditor a notification demanding that the creditor submit for recording a satisfaction of the security instrument no later than 30 days after the effective date of the notification.
Preliminary Comment
Subsection (a) provides that the secured creditor has an affirmative obligation to submit for recording a satisfaction of a security instrument within 30 days after full payment or performance of the secured obligation.
Although the Act imposes both statutory and actual damages upon a secured creditor who fails to submit for recording a timely satisfaction of a security instrument, subsection (b) requires the landowner to provide the secured creditor with notice and opportunity to cure before the landowner may recover damages from the secured creditor. If the secured creditor has not submitted for recording a satisfaction of the security instrument within 30 days after payment of the secured obligation, the landowner may give a notification to the secured creditor demanding that the secured creditor submit for recording a satisfaction of the security instrument within 30 days of the notification. The landowner must give this notice in a manner specified in Section 103, and may give this notice either directly or through its authorized agent.
SECTION 204. FORM AND EFFECT OF SATISFACTION.
(a) A document is sufficient to constitute a satisfaction if it:
(1) identifies the security instrument, the original parties to the security instrument, the recording data for the security instrument, and the office in which the security instrument is recorded;
(2) states that the secured creditor is the holder of the security interest created by the security instrument;
(3) contains a legal description of the real property identified in the security instrument, but only if a legal description is necessary for a satisfaction to be properly indexed;
(4) contains language terminating the effectiveness of the security instrument; and
(5) is signed by the secured creditor and acknowledged as required by law for a conveyance of an interest in real property.
(b) Upon recording, a document complying with subsection (a) shall be effective to constitute a satisfaction of the security instrument.
(c) The [appropriate governmental office under the recording act of this state] must accept for recording a document that contains the information specified in subsection (a), unless:
(1) an amount equal to or greater than the applicable recording fee is not tendered; or
(2) the document is submitted by a method or a medium unauthorized by the [appropriate governmental office under the recording act of this state].
Preliminary Comments
1. The Act is not intended to provide the sole mechanism for effecting the satisfaction of a mortgage. For example, if another state statute permits a secured creditor to present an affidavit that instructs the recording officer to enter a notation of satisfaction in the margin of the record where the security instrument itself appears in the record, the secured creditor could satisfy its obligation under this Act by complying with that statute.
2. Subsection (a) is intended to foster uniformity by specifying minimal standard information for recorded satisfactions. This should facilitate the development of standard satisfaction forms in states adopting the Act. Under the Act, a satisfaction document must identify the security instrument, the original parties to that instrument, and the recording data and office in which it was recorded. The satisfaction document must also contain language terminating the instrument’s effectiveness, as well as a recital that the secured creditor is the holder of the security interest created by the security instrument. The satisfaction document must contain a legal description of the real property covered by the security instrument, but only if a legal description is necessary for the recording officer to properly index the satisfaction document. Thus, if a particular county uses tract indexing, the satisfaction document must include a tract description; by contrast, in a county that uses grantor-grantee indexing, a legal description is unnecessary for proper indexing and need not be included. Finally, the satisfaction document must be signed by the secured creditor and acknowledged as required by law for an effective conveyance of an interest in real property. Upon recording, a document complying with subsection (a) operates as a satisfaction in favor of persons entitled to the benefit of the state’s recording act.
3. A frequent cause of delay in recording a mortgage satisfaction is the recorder’s rejection of a satisfaction document tendered by the secured creditor or its agent. Such a rejection is appropriate if a satisfaction lacks the necessary formalities for a recordable document (such as a proper acknowledgment), if the satisfaction is not tendered with the appropriate recording fee, or if the satisfaction document is submitted in a form or medium not authorized by the recording office. In some cases, however, recorders reject satisfaction documents because they do not include information that is not practically necessary for a satisfaction to serve the notice function required of the recording system. For example, some recorders will reject a satisfaction that does not include a legal description of the affected real property. However, if a satisfaction contains the recording data for the security instrument being released, the satisfaction need not contain a legal description of the real estate unless that description is necessary for indexing the document. In a county that uses grantor-grantee indexing, rejection of a satisfaction document for lack of a legal description serves no useful purpose.
Subsection (c) thus limits the discretion of the recorder in rejecting a satisfaction document that contains the necessary information specified in subsection (a). If such a document is submitted to the recorder in a manner that meets the recorder’s technical recording formalities, along with the appropriate filing fee, the recorder may not reject the satisfaction document. Thus, a recorder in a county that has not yet authorized electronic recording may properly reject a satisfaction document submitted electronically. Likewise, a recorder in a county that requires recordable documents to be submitted on 8-1/2 by 11 paper, with 1-inch margins may properly reject a satisfaction that is submitted on legal-size paper, or with insufficient margins. Obviously, a recorder may properly reject a satisfaction that contains no acknowledgment or an acknowledgment that fails to comply with state law other than this Act. However, the recorder may not reject a satisfaction document because it fails to contain information that is not contained in subsection (a). Thus, for example, a recorder may not reject a satisfaction because
it fails to indicate the name of the attorney who drafted it.
Subsection (c) addresses a particular problem that results in some jurisdictions where a mortgagee attempts to record a satisfaction of a mortgage that it holds via one or more unrecorded assignments. In some jurisdictions, recording officers refuse to accept a satisfaction for recording if the secured creditor is not an original party to the security instrument, unless the satisfaction document recites the chain of recorded assignments by which the secured creditor claims an interest in the real property. Under subsection (c), if a satisfaction document complies with subsection (a) — and thus contains the recital that the secured creditor is the present holder of the security interest created by the security instrument — the recorder may not reject the document, even if it does not recite the chain of recorded assignments by which the secured creditor acquired its interest. This provision is critical to advance the Act’s objective of providing a landowner with an efficient title-clearing mechanism. In many cases, it would be either prohibitively expensive or time-consuming for the secured creditor to locate and record the complete chain of intermediate assignments of the security instrument. In other cases, intermediate assignments have been lost or intermediate assignors are defunct, making it practically impossible to reconstruct a complete record chain of assignments.
SECTION 205. LIABILITY OF SECURED CREDITOR FOR FAILURE TO SUBMIT SATISFACTION FOR RECORDING.
(a) Except as otherwise provided in subsection (b), a secured creditor that is required to submit for recording a satisfaction of a security instrument and fails to do so by the end of the period specified in Section 203(b) is liable to the landowner for:
(1) the actual loss caused by the failure and reasonable attorney’s fees and court costs; and
(2) the additional sum of [$500].
(b) Subsection (a)(2) does not apply if the secured obligation was satisfied prior to the effective date of this [act].
Preliminary Comments
1. Subsection (a)(1) sets forth the basic remedy for the secured creditor’s failure to comply with the requirements of the Act: a damage recovery in the amount of the loss caused by the secured creditor’s noncompliance. The exercise of this remedy is subject to the normal rules of pleading and proof.
2. Subsection (a)(2) provides statutory damages of $500 for the secured creditor’s failure to comply with the requirements of the Act, which the landowner may recover in addition to any damages recoverable under subsection (a)(1). This provision is conceptually similar to U.C.C. Section 9-625(e)(4), which provides for a minimum statutory damage recovery whenever an Article 9 secured party fails to provide a termination statement within a timely manner. Under subsection (c), this statutory penalty does not apply where the secured obligation was satisfied prior to the effective date of this Act.
3. In many cases, secured creditors will delegate responsibility for servicing mortgage loans, including the responsibility to record satisfactions of security instruments. In these cases, the Act treats the servicer as a “secured creditor,” and the landowner thus could hold the servicer liable under the terms of the Act. Such delegations of authority do not automatically relieve the delegating secured creditor of its obligations under the Act. Nevertheless, a delegating secured creditor may be able to plead and prove its compliance with reasonable procedures as a defense to liability under Section 206, if the secured creditor had issued timely directions to its servicer to submit for recording a satisfaction and the servicer failed to do so.
4. Under the Act, the secured creditor must submit for recording a satisfaction only if it has received full payment or performance of the secured obligation. The mere existence of a dispute over the balance of the secured obligations does not by itself toll the 30-day grace period. If the secured creditor does not submit for recording a satisfaction within 30 days after receiving notification under Section 203(b), the secured creditor bears the risk that a court might later conclude that the landowner did in fact tender full payment of the secured obligation.
SECTION 206. LIMITATION OF SECURED CREDITOR’S LIABILITY. Notwithstanding Sections 201(h) and 205(a), a secured creditor is not liable under this [act] if it:
(1) had established a reasonable procedure to achieve compliance with its obligations under this [act];
(2) complied with this procedure in good faith; and
(3) was unable to comply with its obligations because of circumstances beyond its control.
Preliminary Comment
The Act imposes potential liability on a secured creditor that fails to provide a payoff statement in a timely manner, Section 201(h), or to submit for recording a timely satisfaction, Section 205(a). In some circumstances, however, a secured creditor’s failure to comply with these obligations may be due to circumstances legitimately beyond the control of the secured creditor. Thus, Section 206 provides a secured creditor with a defense to liability if the secured creditor has established reasonable procedures to achieve timely compliance with its obligations under this Act and has complied with those procedures in good faith, but where compliance does not occur because of circumstances beyond the control of the secured creditor. The Act does not specify what procedures are “reasonable” or what circumstances are beyond the control of the secured creditor, but leaves the question to judicial resolution.
For example, Section 206 may be implicated if a secured creditor takes appropriate steps to submit for recording a timely satisfaction, but the recording official rejects the document because a recent increase in the required recording fee means that the satisfaction is not accompanied by the required recording fee. If the secured creditor can demonstrate that it had timely sent the satisfaction to the recorder with the previously-required filing fee and did not then have knowledge of the fee increase, the secured creditor should not be liable to the landowner given the secured creditor’s good faith effort to satisfy its obligation.
SECTION 207. REINSTATEMENT OF SECURITY INSTRUMENT; LIABILITY FOR ERRONEOUS REINSTATEMENT.
(a) If a person has recorded a satisfaction of a security instrument in error, the person may execute and record a document rescinding the erroneous satisfaction. The rescinding document must state that the satisfaction was erroneously recorded, the secured obligation remains unsatisfied, and the security instrument remains in force. Upon recording, the document rescinds an erroneously recorded satisfaction.
(b) A recorded document of rescission under subsection (a) has no effect on the rights of any person that acquired an interest in the real property described in the security instrument after the recording of the satisfaction but before the recording of the document of rescission and that would otherwise have priority over or take free of the lien created by the security instrument under [the recording act of this state].
(c) A person that wrongfully records a document of rescission under subsection (a) is liable to any person injured thereby for the actual loss caused by the wrongful recording and reasonable attorney’s fees and court costs.
Preliminary Comments
1. Subsection (a) permits a person that has erroneously recorded a satisfaction of a security instrument to prepare and record a document rescinding this satisfaction and reinstating the lien of the security instrument. In this manner, the Act attempts to address the practical and logistical problems associated with the inadvertent or erroneous recording of a mortgage satisfaction.
For example, suppose that Bank receives a payoff of a loan secured by a mortgage on Parcel X, but because a Bank employee mistakenly transposes the mortgage loan number, Bank mistakenly transmits to the recording official a satisfaction of the mortgage on Parcel Y (on which there remains a significant outstanding balance). While Bank can request the owner of Parcel Y to execute a new mortgage, the owner of Parcel Y may not cooperate in this effort (even if the owner of Parcel Y is legally obligated to do so). In this example, subsection (a) would permit the Bank to rescind the erroneous satisfaction and reinstate its lien against Parcel Y.
2. Subsection (b) addresses the situation in which a third party acquires an interest in the real property following the inadvertent or erroneous satisfaction but before the recording of the rescission document. Subsection (b) makes clear that the rescission is ineffective against any such person entitled to the protection of the state’s recording act. For example, consider the hypothetical described in comment 1 above. Suppose that following the Bank’s inadvertent satisfaction of the mortgage on Parcel Y, the owner of Parcel Y sold that parcel to Buyer. Buyer paid value and had neither knowledge nor reason to know that Bank’s recorded satisfaction was erroneous. Subsection (b) confirms that in a jurisdiction with a pure notice recording statute, Buyer would take Parcel Y free and clear of Bank’s mortgage, and that Bank’s subsequent attempt to rescind the erroneous satisfaction is ineffective against Buyer.
The Act leaves to the state’s recording statute what classes of intervening persons may claim the protection of subsection (b). For example, recording acts in most states protect only reliance creditors (e.g., buyers and mortgagees). In those states, a intervening judgment lien creditor or a donee would not be able to claim the protection of subsection (b). In a state that permits judgment lien creditors to obtain the protection of the recording act, however, subsection (b) would provide the intervening creditor with priority over the secured creditor’s reinstated lien..
3. Subsection (c) authorizes a person injured by the wrongful recording of a document of rescission to recover damages in the amount of the loss caused by the secured creditor’s conduct, along with reasonable attorney’s fees and court costs. The exercise of this remedy is subject to the normal rules of pleading and proof.
4. Under Article 3 of this Act, a “satisfaction agent” may file an affidavit of satisfaction following the secured creditor’s failure to record a timely satisfaction in accordance with the provisions of Article 2. Under Section 305(a), a recorded affidavit of satisfaction constitutes a “satisfaction” for purposes of this Act. Accordingly, a satisfaction agent that recorded an affidavit of satisfaction in error could, in appropriate cases, record a document rescinding the affidavit of satisfaction under this section.
SATISFACTION BY AFFIDAVIT
SECTION 301. DEFINITIONS. In this Article:
(1) “Residential real property” means real property that is used primarily for personal, family, or household purposes and is improved by one to four dwelling units.
(2) “Satisfaction agent” means
(a) a title insurance company, acting directly or through its authorized agent, or
(b) an attorney licensed to practice law in this state and in good standing.
(3) “Title insurance company” means an organization authorized to conduct the business of insuring titles to real property in this state.
Preliminary Comments
1. Article 3 permits a landowner, acting through a “satisfaction agent,” to submit for recording an affidavit of satisfaction of a security instrument in circumstances where the secured creditor is legally obligated to submit for recording a satisfaction but has failed to do so following notification and an opportunity to cure. Under Section 305, this affidavit of satisfaction constitutes a legal satisfaction of the security instrument. In the event that the satisfaction agent wrongfully records an affidavit of satisfaction, Section 306 provides that the satisfaction agent is liable to the secured creditor for damages caused by the wrongful recording. As a result, the Act provides that a “satisfaction agent” must be either a title insurance company (acting directly or through its authorized agent) or a licensed attorney in good standing. This limitation increases the likelihood that affidavits of satisfaction will be recorded only by persons who have the financial responsibility necessary to compensate a secured creditor that suffers a loss caused by the recording of a wrongful affidavit of satisfaction.
Because the satisfaction agent acts in this instance pursuant to the authority of the Act, it is irrelevant whether the satisfaction agent is named as a party in the security instrument.
2. Although the provisions of Article 2 of this Act apply to all mortgages, the provisions of Article 3 authorizing satisfaction by affidavit apply only with respect to “residential real property,” meaning real property that is used primarily for personal, family, or household purposes and is improved by one to four dwelling units. This limitation effectively limits the “self-help satisfaction” provisions of Article 3 to the consumer mortgage context. An owner of nonresidential real property who is unable to obtain a timely satisfaction of its mortgage and wishes to clear title must do so by bringing a quiet title action.
SECTION 302. AFFIDAVIT OF SATISFACTION: NOTIFICATION TO SECURED CREDITOR.
(a) If a secured creditor has not submitted for recording a satisfaction of a security instrument creating a security interest in residential real property within the period specified in Section 203(a), a satisfaction agent acting for and with authority from the landowner may give the secured creditor notification that the satisfaction agent intends to submit for recording an affidavit of satisfaction of the security instrument. A notification satisfies the requirements of this section if it includes the following:
(1) the identity and mailing address of the satisfaction agent;
(2) identification of the security instrument for which a recorded satisfaction is sought, including the names of the original parties to, and the recording data for, the security instrument;
(3) a statement that the real property described in the security instrument is residential real property as defined in Section 301(1);
(4) a statement that the satisfaction agent has reasonable grounds to believe that the person to which the notification is being given is the secured creditor;
(5) a statement that the satisfaction agent possesses evidence that the secured creditor has received full payment or performance of the secured obligation;
(6) a statement that a satisfaction of the security instrument does not appear of record;
(7) a statement that the satisfaction agent intends to execute and submit for recording an affidavit of satisfaction unless, within 30 days after the effective date of the notification, the secured creditor:
(A) submits for recording a satisfaction of the security instrument;
(B) gives a notification to the satisfaction agent stating that the secured obligation remains unsatisfied;
(C) gives a notification to the satisfaction agent stating that it has assigned the security instrument and identifying the name and mailing address of the assignee; or
(D) gives a notification to the satisfaction agent authorizing that agent to submit for recording an affidavit of satisfaction immediately.
(b) A satisfaction agent shall send a notification under subsection (a) by certified mail, return receipt requested, to the secured creditor’s address for notification for the purpose of requesting a payoff statement or, if the satisfaction agent cannot identify that address, at the secured creditor’s address for notification for any other purpose.
(c) Nothing in this [act] shall be construed to require a person to agree to serve as a satisfaction agent.
Preliminary Comments
1. Section 302 specifies the contents of the satisfaction agent’s notification to the secured creditor. This provision is distinct from the separate notification requirement imposed upon the landowner by Section 203(b). Section 203(b) provides that if the secured creditor has not submitted for recording a satisfaction within 30 days of receiving full payment or performance of the secured obligation, the landowner may give the secured creditor notification of this failure — thereby triggering a 30-day grace period within which the secured creditor may submit for recording a satisfaction without incurring liability under Section 205. The notification in Section 203(b) thus serves as a prerequisite to triggering the secured creditor’s liability for failure to submit for recording a timely satisfaction under Section 205.
Because the notification required by Section 302 serves a different function than the notification required under Section 203(b), the landowner may not use one notification to satisfy both sections. However, the landowner could provide both notifications at the same time (i.e., at any time after the 31st day following the point at which the secured creditor received full payment or performance of the secured obligation). Thus, the 30-day grace periods in Sections 203(b) and Section 302 may run contemporaneously.
2. Subsection (a) merely states the minimum requirements for an acceptable notification under Article 3. It does not prevent the satisfaction agent from providing additional information (such as a street address for the mortgaged premises or the mortgage loan number) that might assist the secured creditor in identifying the security instrument or the secured obligation.
3. A secured creditor that receives a notification under subsection (a) can respond in one of four ways: (1) by submitting for recording a satisfaction of the security instrument within the ensuing 30 days; (2) by authorizing the satisfaction agent to submit for recording an affidavit of satisfaction immediately; (3) by giving notification to the satisfaction agent that the secured obligation remains unsatisfied; or (4) by giving notification to the satisfaction agent that the secured obligation has been assigned and identifying the name and mailing address of the assignee. If the secured creditor fails to respond within the 30-day grace period, this Article permits the satisfaction agent to execute and submit for recording an affidavit of satisfaction as long as the satisfaction agent possesses evidence that the secured creditor has received full payment of the secured obligation.
4. Subsection (b) provides that the satisfaction agent must give a notification under subsection (a) by certified mail, return receipt requested, to the secured creditor’s address for notification for payoff statement requests. This requirement serves two important purposes. First, receiving the notification by certified mail alerts the secured creditor’s administrative staff as to the potential legal significance of the notification, and facilitates the secured creditor’s ability to respond promptly to the notification. Second, this requirement provides the satisfaction agent with demonstrable evidence of the satisfaction agent’s attempt to notify the secured creditor.
This provision seeks to establish a functional method for clearing title when the holder of a paid-off mortgage is defunct. If the satisfaction agent has evidence that a particular secured creditor received full payment of the secured obligation, and gives notification to that creditor at its address for payoff statement requests or, if that address is unavailable, at the creditor’s address for notification for any other purpose, the satisfaction agent has complied with the requirements of Section 302(a) even if the notification is returned by the postal service as undeliverable. In that event, Section 303 would authorize the satisfaction agent to proceed to execute and submit for recording an affidavit of satisfaction.
5. This Act does not require a title insurance company or an attorney to agree to serve as a satisfaction agent. For example, if a landowner requests that a title insurance company serve as a satisfaction agent to assist in clearing the landowner’s title under Article 3, and the title insurer cannot satisfy itself as to the accuracy of the statements required in the affidavit of satisfaction under Section 304, the title insurer may refuse to serve as a satisfaction agent.
SECTION 303. AFFIDAVIT OF SATISFACTION: AUTHORIZATION TO SUBMIT FOR RECORDING.
(a) Subject to subsections (b) and (c), a satisfaction agent may execute and submit for recording an affidavit of satisfaction complying with Section 304 if:
(1) the secured creditor fails to submit for recording a satisfaction of a security instrument within 30 days after the effective date of a notification complying with Section 302(a); or
(2) the secured creditor authorizes the satisfaction agent to do so.
(b) A satisfaction agent may not execute and submit for recording an affidavit of satisfaction if it has received a notification under Section 302(a)(7)(B) stating that the secured obligation remains unsatisfied.
(c) If a satisfaction agent receives a notification under Section 302(a)(7)(C) indicating an assignment of the security instrument, the satisfaction agent may not submit for recording an affidavit of satisfaction without complying with Section 302 with respect to the identified assignee.
Preliminary Comments
1. Subsection (a) permits the satisfaction agent to execute and submit for recording an affidavit of satisfaction in two circumstances. Under subsection (a)(1), the satisfaction agent may submit for recording an affidavit of satisfaction if the agent properly gave notification under Section 302(a) and the secured creditor failed to reply within 30 days after the effective date of the notification. Under subsection (a)(2), the satisfaction agent may also submit for recording an affidavit of satisfaction if the secured creditor authorizes it to do so.
2. Subsection (b) reflects that a secured creditor may object to the recording of an affidavit of satisfaction by giving notification within the 30-day grace period indicating that the secured obligation remains unsatisfied. If the secured creditor so objects, the satisfaction agent may not submit for recording an affidavit of satisfaction.
While the secured creditor’s objection may prevent the satisfaction agent from using Article 3’s “self-help” satisfaction procedure, it does not shield the secured creditor from potential liability under Section 205. If subsequent litigation established that the secured creditor was legally obligated to record a satisfaction (i.e., because it had received and accepted full payment of the secured obligation), but failed to do so within 30 days after the effective date of a notification complying with Section 203(b), the secured creditor will have violated its obligations under the Act and the landowner may recover statutory and actual damages under Section 205.
3. In some cases, a satisfaction agent may give a notification under Section 302(a) and receive a response indicating that the security interest has been assigned. If the response identifies the name and address of the assignee, the satisfaction agent cannot submit for recording an affidavit of satisfaction under Article 3 without first giving the identified assignee a notification as required by Section 302(a) and an additional 30-day grace period in which to record a satisfaction.
SECTION 304. AFFIDAVIT OF SATISFACTION: FORM.
(a) An affidavit of satisfaction must:
(1) identify the original parties to the security instrument, the secured creditor, the recording data for the security instrument, and if it is necessary for proper indexing of the affidavit, a legal description of the real property identified in the security instrument;
(2) state that the person executing the affidavit of satisfaction is an officer or a duly appointed agent of a title insurance company authorized to transact the business of insuring titles to interests in real property in this state, or an attorney in good standing and licensed to practice law in this state;
(3) state that the real property described in the security instrument is residential real property as defined in Section 301(1);
(4) state that the person executing the affidavit possesses evidence that the secured creditor has received full payment or performance of the secured obligation;
(5) state that the person executing the affidavit gave notification under Section 302(a) to the secured creditor of its intention to execute and record an affidavit of satisfaction, and that either:
(a) more than 30 days have elapsed following the effective date of that notification, during which time the creditor has neither recorded a satisfaction of the security instrument nor given notification that the secured obligation remains unsatisfied; or
(b) the secured creditor authorized the person executing the affidavit to execute and record an affidavit of satisfaction; and
(6) be executed and acknowledged as required by law for a conveyance of an interest in real property.
(b) No particular phrasing of an affidavit of satisfaction is required. The following form of affidavit, when properly completed, is sufficient to satisfy the requirements of subsection (a):
“ (Date of Affidavit)
AFFIDAVIT OF SATISFACTION The undersigned hereby states as follows: 1. I am [an officer or a duly appointed agent of [Name of title insurance company] , which is authorized to transact the business of insuring titles to interests in real property] [an attorney in good standing and licensed to practice law] in this state. 2. I am executing this Affidavit of Satisfaction to evidence full payment or performance of the obligations secured by land covered by the following security instrument (the “Security Instrument”) currently held by ______________ (the “Secured Creditor”): Title of Security Instrument: Original Parties to Security Instrument: County and State of Recording: Recording Data for Security Instrument: 3. I possess evidence that the secured creditor has received full payment or performance of the balance of the obligations secured by the security instrument. 4. The real property described in the security instrument constitutes residential real property as defined in [Section 301(1) of the [act]]. 5. On [Date of Notification Under Section 302(a)] , I gave notification to the secured creditor under [Section 302(a) of this [act]] that I would execute and record an affidavit of satisfaction of the security instrument if, within 30 days of the effective date of that notification, the secured creditor did not record a satisfaction of the security interest or give notification that the secured obligation remains unsatisfied. 6. The 30-day period identified in paragraph 5 has elapsed, and the secured creditor has neither recorded a satisfaction of the security instrument nor given notification that the secured obligation remains unsatisfied. [[Alternative if Secured Creditor authorizes Satisfaction Agent to execute and record Affidavit of Satisfaction:] The secured creditor responded to the notification in paragraph 5 by authorizing me to execute and record this affidavit of satisfaction.]
(Signature of Satisfaction Agent) ” (Notarization) |
Preliminary Comments
1. Subsection (a) sets forth the information necessary for a sufficient affidavit of satisfaction. An affidavit that lacks any of the information required by subsection (a) does not operate as a satisfaction of the security instrument under Section 305, even if it is accepted for recording.
2. Although subsection (b) provides that a particular phrasing is not required, it also specifies a safe-harbor form that, when properly completed, satisfies the requirements of subsection (a).
SECTION 305. AFFIDAVIT OF SATISFACTION: EFFECT.
(a) Upon recording, an affidavit complying with Section 304:
(1) constitutes a satisfaction of the security instrument described in the affidavit; and
(2) is conclusive evidence of the facts contained in it in favor of a person that acquires an interest in the real property after the affidavit is recorded and that is entitled to protection under [the recording act of this state].
(b) The recording of an affidavit of satisfaction does not by itself extinguish any liability of any person for repayment of the secured obligation.
(c) The [appropriate governmental office under the recording act of this state] may not refuse to accept for recording an affidavit of satisfaction that contains the information specified in Section 304(a), unless:
(1) an amount equal to or greater than the applicable recording fee is not tendered; or
(2) the affidavit is submitted by a method or a medium unauthorized by the [appropriate governmental office under the recording act of this state].
Preliminary Comments
1. Subsection (a) provides that an affidavit of satisfaction that complies with Section 304(a) constitutes a legally sufficient satisfaction of the security instrument upon recording.
2. Sometimes, a secured creditor may hold a security instrument by virtue of one or more unrecorded assignments. In this circumstance, some recording officers will reject a satisfaction document prepared by the secured creditor on the ground that the secured creditor is not the secured creditor of record (due to the unrecorded assignments). Such a requirement creates a significant title problem, especially where intermediate assignments of a security instrument cannot be found and recorded to reconstruct the appropriate chain of assignments on the real property records. Furthermore, in some circumstances, it may be practically impossible for the current secured creditor to reconstruct a record chain of assignments where one or more intermediate assignors are institutions that no longer exist.
Subsection (c) addresses this problem by limiting the discretion of the recording officer to reject an affidavit of satisfaction because of its content. The recording officer may reject an affidavit if it lacks any of the information required in Section 304(a), if the appropriate filing fee is not tendered, or if the satisfaction agent submits the affidavit by a method or medium unauthorized by the recording office’s rules. However, the recording officer may not refuse to accept an affidavit of satisfaction because the secured creditor is not the secured creditor of record, or because the affidavit does not identify the complete chain of mortgage assignments.
3. Section 305(a)(2) ensures that the affidavit of satisfaction fulfills the necessary “title-clearing” function needed to address the problem caused by unrecorded mortgage assignments. Subsection (a)(2) provides that the affidavit of satisfaction is conclusive evidence of the facts contained in the affidavit as to any person that acquires an interest in the real property after recording of the affidavit, if that person is entitled to assert the benefit of the state’s recording act.
For example, suppose that Landowner believes it has satisfied a mortgage on its home by full payment to Creditor B (whom it reasonably believes to be the holder of the security instrument by means of an unrecorded assignment). On behalf of Landowner, Title Insurer provides timely notification to Creditor B under Section 302. During the following 30 days, Creditor B neither submits for recording a satisfaction nor objects that the secured obligations remain unsatisfied. As a result, Title Insurer thus submits for recording an affidavit of satisfaction complying with Section 304 on behalf of Landowner. Shortly thereafter, Landowner sells the real property to Buyer, who purchases the land for value and without knowledge or reason to know that Creditor A (the actual holder of the security instrument) claims that it has not received full performance of the secured obligation. Section 305(a)(2) provides that the affidavit of satisfaction is conclusive evidence of satisfaction in favor of Buyer, and thus Creditor A cannot enforce the lien of the security instrument against Buyer.
Section 305(a)’s conclusive presumption that the affidavit of satisfaction is valid works only in favor of parties entitled to the benefit of the state’s recording act. In most states, this does not include “non-reliance” third parties such as judgment lien creditors or donees. However, to the extent that a state’s recording statute operates in favor of judgment lien creditor or donee, that judgment lien creditor or donee could likewise claim the benefit of Section 305(a).
4. Subsection (b) provides that the recording of an affidavit of satisfaction does not affect the enforceability of the secured obligation. If a satisfaction agent executes and records an affidavit of satisfaction even though the secured creditor has not received full payment or performance of the secured obligation, the Act does not preclude the secured creditor from enforcing the secured obligations against any person liable for the obligation. Whether the secured creditor has in fact received full payment or performance of the secured obligation is governed by law other than this Act. Likewise, the Act does not preclude the secured creditor from enforcing any other security it may hold to secure payment or performance of the obligation (i.e., security other than the real property described in the security instrument).
SECTION 306. LIABILITY OF SATISFACTION AGENT.
(a) Subject to Section 202(b), a satisfaction agent that records an affidavit of satisfaction erroneously or with knowledge that the statements contained in the affidavit are false is liable to the secured creditor for the actual loss caused by the recording and reasonable attorney’s fees and court costs. An affidavit of satisfaction is not erroneous if the satisfaction agent gave proper notification to the secured creditor under Section 302(a) and the secured creditor failed to respond in a timely manner to the notification by one of the methods specified in Section 302(a)(7).
(b) If a satisfaction agent records an affidavit of satisfaction with knowledge that the statements contained in the affidavit are false, subsection (a) does not:
(1) limit a court from awarding punitive damages on account of such conduct;
(2) limit the secured creditor from proceeding against the satisfaction agent under applicable law of this state other than this [act]; or
(3) preclude the enforcement of any criminal statute prohibiting such conduct.
Preliminary Comments
1. If a satisfaction agent erroneously executes and records an affidavit of satisfaction, the secured creditor may effectively lose the ability to enforce the security instrument as a means to facilitate its collection of the remaining balance of the obligation. In such a case, Section 306(a) permits the affected secured creditor to recover damages from the satisfaction agent, subject to the usual rules of pleading and proof.
The satisfaction agent’s liability under subsection (a), however, is subject to the provisions of Section 202(b). Article 3 permits a satisfaction agent to assist in clearing a security instrument from the landowner’s title in cases in which the satisfaction agent possesses evidence that the secured creditor has received full payment of the secured obligation. In many cases, this evidence will consist of a cancelled check or wire confirmation evidencing the payment of the payoff amount as specified in a payoff statement provided by the secured creditor. Unless the satisfaction agent knows that the payoff amount was incorrect, the satisfaction agent may rely upon the accuracy of the payoff amount for the purpose of ascertaining whether it can proceed under Article 3. If the payoff amount was incorrect, it is incumbent upon the secured creditor, when given a notification under Section 302, to object to the recording of an affidavit of satisfaction on the ground that the secured obligation remains unsatisfied.
The satisfaction agent’s recording of an affidavit of satisfaction is also not erroneous — even if the secured obligation remains unsatisfied — if the satisfaction agent properly gave notification to the secured creditor under Section 302(a) of its intention to submit for recording an affidavit of satisfaction and the secured creditor fails to respond by giving notification to the satisfaction agent that the secured obligation remains unsatisfied.
2. The availability of a self-help satisfaction remedy in Article 3 creates the risk that in some circumstances, a satisfaction agent may execute and record an affidavit of satisfaction with knowledge that the statements contained in that affidavit are false. In order to discourage such conduct, section 306(b) clarifies that in appropriate cases, a court may award punitive damages against such a satisfaction agent. Section 306(b) also preserves the applicability of other state civil law (such as a statute proscribing unfair or deceptive trade practices) or criminal law (such as perjury) against such conduct.ARTICLE 4
MISCELLANEOUS PROVISIONS
SECTION 401. UNIFORMITY OF APPLICATION AND CONSTRUCTION. In applying and construing this [act], consideration must be given to the need to promote uniformity of the law with respect to its subject matter among states that enact it.
SECTION 402. EFFECTIVE DATE. This [act] takes effect on ___________________.
SECTION 403. REPEALS. The following acts are repealed: [List statutes to be specifically repealed.]