Volume 13, Number 2 · April 2003

Mortgages: Improving Your Satisfaction

By Wesley A. Cramer

Few things are more common to Pennsylvania homeowners than mortgages. At one time or another, nearly every homeowner has used real estate to secure the repayment of a loan. Frequently, the homebuyer uses the real estate being purchased to secure the loan taken out to buy the home.

There are many kinds of mortgages - first, second, residential, commercial, purchase money, open-end - just to name a few. Each serves a different purpose, but all have at least one thing in common. When the debt is paid, the mortgage must be terminated. The termination is called a satisfaction. If the mortgage has been recorded in the office of the recorder of deeds, notice of the payment of the debt and the satisfaction of the mortgage needs to be recorded. If the mortgage satisfaction is not done promptly and properly, then the homeowner suffers by not having clear record title to the home.

All this sounds simple - and in theory, it is. However, since Pennsylvania's first mortgage satisfaction statute was enacted into law on May 28, 1715, life has changed dramatically. The creation of the secondary mortgage market (the business of buying and selling mortgages by mortgage investors), coupled with the greater mobility of our society, globalization and unitization of our economy, and the emergence of corporate greed and irresponsibility on the part of a few, has produced new mortgage satisfaction problems for homeowners.

A case in point. Last summer, as part of a relatively routine real estate closing, we sent to the out-of-town lender the payoff amounts on two mortgages along with a written request to promptly satisfy both mortgages. Over the next six months, we hounded the lender with more letters and phone calls - all to no avail. Even though the lender had been paid in full, the mortgage remained unsatisfied - and so did the property owner since the unsatisfied mortgages rendered the property unmarketable.

Under current mortgage practice, a mortgage may be assigned many times and even serviced by another institution. Few of these appear on the record. Lenders may image the documents and not keep originals. Where lenders operate in many states, they may not be familiar with Pennsylvania satisfaction requirements, which have historically included the original or a certified copy of the mortgage and a satisfaction piece.

To compound the problem, many lenders have merged into other companies, gone out of business, or just disappeared. In such cases, getting a mortgage satisfied becomes difficult, if not impossible.

In an attempt to remedy some of these problems, the Mortgage Satisfaction Act of 2002 was signed into law last year and became effective on February 7, 2003. The Act places new responsibilities on lenders and gives homeowners more options to see that the residential mortgages are satisfied promptly and properly.

Under the new Act, the lender must see that the satisfaction is properly recorded with the recorder of deeds. No longer can the lender "delegate" the recording responsibility to the borrower. Under the prior law, a lender could satisfy mortgages by making a note on the margin of the recorded mortgage. Now, the lender must record a uniform document (called a satisfaction piece) evidencing the satisfaction of the mortgage.

The new Act provides both some flexibility and some "sharp teeth. " A satisfaction piece may be recorded by the lender of record, an assignee whether or not of record, a nominee or a servicer. After a 60-day notice of payment, a lender failing to satisfy the mortgage may become liable for substantial damages, including attorney's fees.

A special remedy in the case of residential mortgages is provided. If satisfaction is not recorded within 90 days of payment and 60 days after notice, the settlement agent may record a statutory form, the "Settlement Officer Satisfaction" to terminate the mortgage. Eliminated under the new law is the cumbersome need to present to the recorder either the original or certified copy of the mortgage at the time a satisfaction piece is presented for recording.

However, the county Recorder of Deeds may opt for a different and more flexible validation process. In such counties, the one presenting the satisfaction piece will need to present the original mortgage, or a copy of the first page, or pay a validation fee so that the recorder may verify that the satisfaction piece contains correct information regarding the mortgage to be satisfied. Washington County's Recorder has elected this process, while Westmoreland, Greene and Fayette counties currently have not.

The new law is not perfect. Undoubtedly, reform will continue as life changes. However, it is a first step that will help to improve the efficiency of the mortgage satisfaction process and afford innocent property owners realistic relief.

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