Payment of the debt underlying a lien on real property extinguishes the lien. When the underlying debt is paid, the lien holder has a duty to issue a written release as evidence of the discharge of the lien.
In the absence of a contrary provision in the deed of trust, the mortgagee must bear the expense of executing a release. Even where it is expressly agreed that the mortgagor will bear such an expense, the mortgagee still has the duty to prepare and execute the release. To properly provide notice of the release to third parties dealing with the property, the release should be filed in the county in which the property is located.
A release of a lien must be supported by valid consideration. Usually, the consideration is the payment of the debt. A full release is given to evidence the extinguishment of the entire lien when all of the debt is paid. A partial release is given to evidence the release of only a specified portion of the property from the lien on payment of the applicable portion of the debt.
A partial release is required when a lender expressly promises to release the purchase-money lien on portions of the mortgaged property in exchange for specified payments or other consideration. In a commercial loan context, loans to builders to acquire property to be developed and sold in smaller tracts often contain such provisions.
However, in a residential context, partial releases may sometimes be sought by borrowers seeking to sell or transfer portions of the property secured by the deed of trust. When evaluating the merits of granting a partial release for a residential loan, it is paramount that the servicer obtain current valuations of both the property for which the release is sought and the property being retained as collateral in order to ensure that the loan will not be under-collateralized after the proposed partial release.
{OPENADS=zone=17}Even though payment or satisfaction of the mortgage debt extinguishes the encumbrance without any release from the mortgagee, the lien – if not released – operates as a cloud on the title of the mortgagor. Therefore, on payment or satisfaction of the debt, a mortgagor is entitled to a release of the lien and, if the mortgagee refuses to execute such a release, the mortgagor may maintain suit to have the lien canceled.
The debtor may recover actual damages in an action for slander of title based upon the lien holder's refusal to execute a release, but exemplary damages are only available in exceptional circumstances.
An instrument evidencing a party's release of a claim to some right or interest in real property should show clearly that the party signing the release is either the party indicated by the land title records to hold the claim or the authorized agent of that party.
The document should refer specifically to the record (by volume and page) where evidence of the claim appears. The identity of the party in whose favor the release is given should be expressed, stating the same name and status as the party seeking the unencumbered interest in the title.
In addition, to make certain that the release is traceable to the property under examination, the document should recite both the legal description of the land affected by the release, with reference to its description in a conveyance to the record title holder, and whether the release is to all or just a portion of the property conveyed.
Since a release is, generally speaking, a contract that must be supported by consideration, it is preferable to specifically recite the signer's receipt of consideration (i.e., specify the amount of the payment that has been received).
Evidence of the release must be recorded with the county clerk. A mere entry or notation on the document being released is not sufficient. Rather, the release must be shown by a separate instrument, and – in Texas, for instance – may not be recorded unless it is signed and acknowledged or sworn to by the grantor in the presence of two or more credible subscribing witnesses, or acknowledged or sworn to before and certified by an officer authorized to take acknowledgements or oath.
Whereas Section 12.017 of the Texas Property Code provides that under certain circumstances a title insurance company may execute a curative affidavit to prove the payment or satisfaction of a lien when a mortgagee has failed to file the release, this statute is expressly inapplicable to liens on commercial properties. Thus, there is no title company curative remedy available to absolve the mortgagee of the duty to file a release in a commercial loan setting.
{OPENADS=zone=18}If payment of the existing indebtedness is made not by the debtor, but by another creditor as a part of a legitimate business transaction, the lien is not extinguished. Instead, the lien is transferred to the new creditor. Assignment of the debt also transfers the lien. Transfer of the lien, however, does not carry the debt with it. An attempt to transfer the lien without the debt is ineffective and merely releases the lien.
Ordinarily, the lien is not affected by the destruction or renewal of the purchase-money note, or by a change in the form of the contract or security. Nor is the lien extinguished by suing or failing to bring suit on the purchase-money note, or by attaching the property subject to the lien or other property not subject thereto.
On the other hand, a reconveyance to the mortgagor of the property purchased by the mortgagee is assumed primarily to operate as a release of the lien of the mortgage or trust deed.
A lien release that states that the underlying indebtedness was paid in full will release the lien but will not necessarily release the entire debt. Evidence is admissible to show that the consideration stated in the release was not actually paid. In the face of such evidence, the debt will not be extinguished unless the debtor shows that the creditor intended to release the indebtedness despite the debtor's failure to fully pay the note.
Mark G. Torabi is with law firm Barrett, Burke, Wilson, Castle, Daffin & Frappier LLP.