Feb. 19, 2014 – Lawyers who represent secured creditors and other parties to real estate transactions should be aware of a new state law that replaces current law on mortgage satisfactions in both the residential and non-residential real estate context.
The Mortgage Satisfaction Act (2013 Wisconsin Act 66), enacted in December 2013, governs satisfaction procedures, including required payoff statements and penalties for secured lenders who do not timely submit a satisfaction of mortgage for recording.
The Mortgage Satisfaction Act also enables title insurance companies and their authorized agents to record “Affidavits of Satisfaction” for residential property.
According to legislative documents, the purpose of Act 66 is to ensure the timely transmittal of payoff statements and mortgage satisfaction recordings as changing mortgage holders and loan servicing responsibilities can complicate these transactions.
In written testimony to the Senate Committee on Financial Institutions and Rural Issues, Sen. Sheila Harsdorf (R-River Falls), stated that “problems in the transmittal of payoff statements and recording mortgage satisfaction documents have increased, resulting in frustrating delays for those seeking to sell or purchase property.”
The new law enacts provisions of the Uniform Residential Mortgage Satisfaction Act developed by the National Conference of Commissioners on Uniform State Laws.
This article provides an overview of the new law and the changes that lawyers must consider in dealing with real estate transactions and mortgage satisfactions.
Reliable Payoff Statements
Prior to the enactment of the Mortgage Satisfaction Act, secured creditors provided a payoff statement for a mortgage loan, but the parties receiving the payoff statement (including the proposed buyer and buyer’s lender) did not have a statutory right to rely upon that payoff statement (although an equitable right may have existed).
If the secured creditor determined post-closing that the amount received was insufficient to pay the secured obligation in full, the secured creditor could demand the additional funds as a condition to issuance of the satisfaction of the mortgage.
Act 66, which created Wis. Stat Section 708.15, addresses this situation and provides that a secured creditor that issues an understated payoff statement may not deny the accuracy of the payoff statement as against any person that reasonably and detrimentally relied upon the understated payoff amount.1
However, if the secured creditor timely discovers the understated amount, the secured creditor may send a corrected payoff statement and the parties to the transaction must modify the closing documents if they have a reasonable opportunity to act.
If the parties in the transaction do not have a reasonable opportunity to act upon the corrected payoff statement, and the secured creditor is paid pursuant to the understated payoff statement, the secured creditor must satisfy the mortgage and may pursue other legal remedies against the borrower (including suing under the promissory note). Section 708.15(4) applies to both residential and non-residential property.
The secured creditor must provide the payoff letter to the requesting party within seven business days (or a reasonably longer period of time for non-residential property.2 In addition, the secured creditor may not qualify a payoff amount or state that the payoff amount is subject to change.3 Finally, the secured creditor must provide, upon request, one payoff statement without charge during any two-month period.4
Satisfaction by Secured Creditors
Consistent with past requirements, a secured creditor must submit a satisfaction of mortgage for recording within 30 days of the receipt of full payment or performance of the secured obligation. However, Wis. Stat. section 708.15 modifies the penalties if the secured creditor fails to timely satisfy the mortgage.
Prior to the enactment of the new law, a secured creditor faced penalties of $100 per day, up to a total of $2,000, plus actual damages resulting from the violation.
Today, a secured creditor who fails to timely satisfy the mortgage faces penalties of $500, plus any actual damages caused by the failure, and any reasonable attorney fees and court costs incurred.5
Affidavits of Satisfaction by Title Companies
Wis. Stat. sections 708.15(8)-(11) are entirely new to Wisconsin and permit a title insurance company or its authorized agent to record “Affidavits of Satisfaction” for residential mortgages not satisfied by a secured creditor.
Pursuant to section 708.15(11), a properly recorded Affidavit of Satisfaction constitutes a satisfaction of the security instrument (mortgage) described in the affidavit. If the title company wishes to record an Affidavit of Satisfaction, then the title company must follow the steps detailed in 708.15(8)-(10) and generally outlined below:
The property encumbered by the security instrument must be residential real property, defined as real property located in Wisconsin that is used primarily for personal, family or household purposes and is improved by one to four dwelling units;6
The title company must send notice to the secured creditor with the language set forth in section 708.15(8), including a statement that the title company believes that the property is residential real property, that the secured creditor has received full payment or performance of the secured obligation, and that the title company may submit for recording an Affidavit of Satisfaction of the security instrument unless, within 30 days after the effective date of the notice, the secured creditor satisfies the security instrument (section 708.15(8) contains the required language.
If, after 30 days from the effective date of the notice to the secured creditor the satisfaction has not been recorded by the secured creditor, the title company may (but has no obligation to) record the Affidavit of Satisfaction (the content of the Affidavit of Satisfaction is set forth in section 708.15(10)).
The Affidavit of Satisfaction sections of 708.15 apply on a “go-forward” basis and for mortgages paid pre-2014. This is important as many mortgages which were paid during the “Great Recession” remain unsatisfied of record due to varying circumstances including lenders who failed and were taken over by the FDIC, loans being assigned multiple times with no record of the assignments and, unfortunately, simple oversight.
If your client comes to you concerned about a mortgage against his or her residential property which was paid, but remains unsatisfied of record, ask your client to provide a copy of the HUD-1 Settlement Statement and title commitment/policy from your client’s most recent refinance/purchase of the property to the current title company. The current title company can facilitate sending notice to the secured creditor under section 708.15(8) and, if necessary, recording the Affidavit of Satisfaction.
For more information about Wisconsin’s new mortgage satisfaction law, please see videos posted on Knight Barry Title, Inc.’s website.
1 Wis. Stat. § 708.15(4).
2 § 708.15(3)(c).
3 § 708.15(3)(f).
4 § 708.15(3)(g).
5 § 708.15(5)(b).
6 § 708.15(1)(m).