The satisfaction of mortgage is a document that shows that the borrower has paid off the loan and that the property title is now clear of liens.
This term is confusing for most real estate students; thus, it is important to learn its definition from a reliable platform. Fortunately, you’re in the right place as I help students learn and understand real estate terms and prepare them for the exam.
After reading this post, you’ll be able to define the satisfaction of a mortgage and understand the important parts of this document. Here’s everything you need to know about the satisfaction of mortgage!
What Is Satisfaction of Mortgage?
A satisfaction of mortgage is a legal document that confirms that the mortgage is finished, releasing the loan’s lien on the property and transferring title to the borrower. The document includes the borrower and lender’s contact details, loan and property details, and verification of authenticity.
The document is also known as the discharge, release, or cancellation of the mortgage. It is an important certification that helps borrowers update their property ownership records. Without this document, it is impossible to sell the property or refinance. If the borrower has no satisfaction of mortgage, it can create many issues.
It is the lender’s job to prepare the satisfaction of mortgage. The lender gets the document signed by all the parties involved and gets it notarized. Once the document is complete, the lender files it with the relevant records office.
How Does Satisfaction of Mortgage Work?
When borrowers take out a mortgage, they have to make monthly payments throughout the mortgage term. These monthly payments include interest and principal, and the borrower pays the amount to the lender for a pre-agreed period. By making monthly payments, the borrower pays off the mortgage. It decreases the mortgage balance and causes amortization of the principal.
At the end of the term, the borrower makes a final payment, including all the additional costs and late fees, if any. When the borrower has paid off the mortgage completely, the mortgage lender has to provide a document as proof that the mortgage is finished. This document is the satisfaction of mortgage.
Completion of Satisfaction of Mortgage
Usually, the financial institution (lender) completes the paperwork for the satisfaction of mortgage. The completion of this process includes the following steps:
Identification of the Parties
The first step to preparing a satisfaction of mortgage is to identify the parties. The two main parties in this contract are the lender and the borrower. The borrower receives funds from the lender to purchase a home, and that home is the collateral in the mortgage. The borrower and lender agree to mortgage terms and conditions and sign a promissory note and mortgage form.
Filling and Signing the Form
The lender prepares the satisfaction of mortgage document after the final mortgage payment is made. The document should be filled and signed by both parties. In some states, a witness must be present during the signing process. The following information should be included in the satisfaction of mortgage:
- The lender or payee’s name
- The borrower or payer’s name
- Total mortgage amount
- Date of execution of the mortgage
- Address of the property, legal description, and tax parcel number
- Verification that all payments have been completed
- Acknowledgment that there is no lien on the property by this mortgage lender
- Signs of both parties and date of signature
Notarization and Record of the Document
The last step is to notarize the document and then file it to the appropriate government department. The notarization of the document includes verification by a public official. The document is then recorded by the lender in the land registry office or the local County Recorder Office.
Once the document is recorded properly, the lien on the property is released. The borrower receives the ownership of the property after the satisfaction of the document has been filed.
Satisfaction of Mortgage Example
Jane wants to purchase a property worth $280,000. She paid $28,000 as a down payment and applied for a mortgage loan at a bank for the remaining amount. The bank approves the loan on these terms:
- Mortgage amount: $252,000
- Mortgage term: 30 years
- Interest rate: 5.27%
- Monthly payments: $1,395
Jane pays $1,395 monthly mortgage payments to the bank. After 30 years, Jane makes a final payment of $1,395 to the bank. The mortgage has been completely paid off to the bank now. The bank files a satisfaction of mortgage in the local county office.
This document indicates that Jane has fully paid the mortgage, and there are no liens on her property. Jane has title of the property after the release of the lien.
Frequently Asked Questions
Who Files Satisfaction of Mortgage?
The lender files the satisfaction of mortgage, but the document includes the signatures of the mortgage lenders and the borrower.
What if the Satisfaction of Mortgage Isn’t Recorded?
If the satisfaction of mortgage isn’t filed or recorded, the state can issue a penalty or fine to the mortgage lender. This is why it’s important to file the document in the given time frame after the mortgage is complete. The given time frame varies from state to state. For instance, according to Florida Statute the lender must comply with the law till 60 days after the full payment.
During this period, if the lender fails to file a satisfaction of mortgage, the borrower must file a suit in court to release the lien on the property. Until the satisfaction of mortgage isn’t recorded, the borrower will not have title of ownership on the property.
Where to Record the Satisfaction of Mortgage When Complete?
A satisfaction of mortgage is filed or recorded at the local County Clerk’s office. The office is also known as the land registry or county recorder’s office.
What’s the Difference Between a Deed of Reconveyance and a Satisfaction of Mortgage?
Satisfaction of mortgage and deed of reconveyance both indicate that the mortgage has been completely paid off and there is no lien on the property. A deed of reconveyance is not used in all states. This deed is more common in states where a deed of trust is used.
What to Know for the Real Estate Exam
A satisfaction of document is an important legal document that shows that the borrower has completely paid off the mortgage and the lien on the property has been released. The lender files this document in the local county office after filling out the form and including signs from both parties. This document holds great importance for the property owner, especially those who have paid off their mortgage quickly.
Hopefully, now you understand what is a satisfaction of mortgage. However, this is not the only real estate term you need to learn for your exam. Learn more terms through our comprehensive Real Estate Flashcards.