A mortgage is a debt, and an old debt can delay a closing. It almost never happens when there are professionals representing the seller. Once in a while, a seller doesn’t have a thorough attorney or broker. Then a title search will find out that their property still has an open mortgage without a recorded discharge.

What is a mortgage discharge?

When you get a mortgage for a property, you sign a document that says that the institution that lent you the money has some rights if you don’t pay the mortgage. When you pay the entire amount that was borrowed, that institution sends a discharge. It is a signed document that relinquishes their rights and states that you no longer owe them money.

What is a recorded mortgage discharge?

The term recorded, as I am using it here, means that the discharge paperwork has been filed at the Registry of Deeds. Every county in Massachusetts has a Registry, or two, or three. They used to have shelves and shelves of books. People used to go to the Registry and open one of the big books; now, they can look up legal records online at Mass Land Records.  (They are still filed as Book ___ and Page ____, as in the old system.)

When you close on a house or condo, you don’t legally own it until it is on the public record at the Registry of Deeds. Then, anyone can go look up that you own this property. Not only will they see the Deed, they will see the mortgage that you just signed. This is public notice that you own this property. It also tells anyone who looks what your mortgage amount was when you purchased the property.

Preparing to close: When it goes normally

The closing attorney is responsible for seeing that previous debts are paid by the previous owner. In a typical purchase, the closing attorney holds funds, pays off any existing mortgages, and records a discharge for those mortgages after they are paid off. The Registry of Deeds will show that discharge, so that it is public record that the new owners do not owe that amount. The new owner is protected from being responsible for someone else’s debt.

Preparing to close: When there is a problem

Problems arise if an attorney fails to record a discharge at closing or refinancing. The discharge comes from the lender, so that takes time. The closing attorney may not see it for weeks or months. If an attorney’s office is disorganized, or if the paperwork is lost and it wasn’t noticed, a discharge might never get filed. If there is no discharge, there is no public record that the mortgage has been paid off.

Imagine a property owner who bought in 1998; they borrowed $350,000 in 1998. They refinanced in 2008; they borrowed $300,000 in 2008. On the day of the 2008 refinance, the balance of their $350,000 mortgage was paid off. The closing attorney for that refinance did not keep track of the discharge, and it was never recorded. If their 1998 mortgage did not have a recorded discharge, the Registry of Deeds will show that they owe on both mortgages. Then, you try to close on this property and find that there are two active debts on it, not one.

Similarly, if a mortgage is paid off over time, some lenders do not automatically record the discharge. If they send it to the homeowner, that homeowner may not follow-up to record it at the Registry of Deeds. Then, at closing, the public record still shows an open mortgage.

The property cannot close for a new purchase unless it can be proven that all the seller’s debts associated with that property are paid off. For the property to close, the closing attorney needs to have either funds to pay all the debts or proof that all previous mortgages have been paid. If the discharge is in a file at the seller’s house, it can be recorded. If the discharge is missing, it can be a problem.

Merging or closing banks and lending institutions

It can take some research to find the institutional lender who has the record of the paid-off mortgage, so they can create a new discharge document. Suppose that the mortgage from 1998 was from Bank of Boston. There is no Bank of Boston anymore. Bank of Boston merged with Fleet Financial group in 1999. Fleet Financial Group, in turn, was bought by Bank of America in 2004.

Who has the records now? How long will it take to issue a new discharge?

Computerization has helped the process for tracking old discharges. Problems are relatively rare. However, this is a real estate problem that we see, once in a great while.