In this article, we will discuss the procedures a title company follows for clearing voluntary liens. In part two, we will discuss suggested methods for clearing involuntary liens.
Clearing Voluntary Liens
The title commitment is an agreement between the title company and the proposed insured to issue, subject to the requirements contained in the commitment, a title insurance policy.
Schedule B-1 of the commitment contains the requirements that must be satisfied prior to the issuance of the policy. These include the documents to create the estate to be insured as well as the documents necessary to clear existing liens from the property. These liens may be voluntary liens (liens intentionally created by the owner, e.g., a deed of trust or a mortgage) or involuntary liens (liens that attach to the property without the owner's consent, e.g., a judgment lien or tax lien).
Clearance of Deeds of Trust and Mortgages
A deed of trust is the recorded instrument that secures a loan made to the owner of the real property. there are three parties to a deed of trust: the Borrower (the owner of the property), the Trustee ( who is appointed to exercise the power of sale if there is a default), and the Lender (the beneficiary or secured party).
In Colorado, a deed of trust usually names the public trustee of the county in which the property is located as the trustee. The public trustee will conduct a foreclosure sale of the property in the event that there is a default of the loan by the borrower. In some cases, a private trustee is designated (usually in error). In this case, under our state law, the deed of trust is deemed to e a mortgage and a judicial foreclosure is required.
A mortgage is similar to a deed of trust, except that there are only two parties to the transaction, the borrower (owner of the property) and the lender. There is no trustee at all. If there is a default on the loan and the lender decides to foreclose on the property, a judicial foreclose is required.
When Schedule B-1 of the commitment calls for the release of a deed of trust or mortgage, the closer will contact the lender in writing for the payoff amount. In order to obtain this payoff, the closer will need the borrower's full name(s), loan number, and at lest the last four digits of the borrower's social security number. The closing department at the title company will initiate the release by calling the lender; since some lenders charge for payoff information updates, payoffs are usually ordered about two weeks prior to the closing.
After the closing and the payoff has been made, the lender is required under our state law to execute a release of the deed of trust. this release will be sent to the public trustee together with the original promissory note (marked paid in full and canceled). and the deed of trust or a certified copy of the deed of trust. The public trustee will execute the release and record it with the clerk and recorder. Some institutional type lenders may qualify to file a release of a deed of trust without producing the original note. In such cases, a specific form of release is executed and filed with the public trustee. The release of a mortgage is executed by the lender upon payment of the loan.
A financing statement is filed to perfect a lender's security on personal property. It is filed with the secretary of state where the borrower has it place of business. When the collateral is fixtures, crops, oil, gas, or minerals, the document is filed with the clerk and recorder.
A Termination of Financing Statement is used to release the financing statement form the property and is usually provided by the lender upon payoff.