I Can’t GIVE No Satisfaction (with Apologies to the Rolling Stones)
A byproduct of the current real estate market is the need for lenders and other creditors to distinguish between a lien release and a lien satisfaction.
Whether the lien at issue is a mortgage lien, a mechanics lien, a judgment lien, or some other type of lien, whether a release or a satisfaction is to be recorded to extinguish the lien has great implications for the lienholder.
A lien is an encumbrance on a real estate title which secures the repayment of some obligation. For example, in the case of a mortgage lien, the mortgage lien is security for the repayment of the mortgage note. Once the mortgage note is paid in full, the holder of the mortgage records a “satisfaction of mortgage.”
What happens, though, when the mortgage is not paid in full? That’s the situation that many junior lienholders find themselves in right now with the high volume of “short sales” taking place. Faced with the prospect of having their junior mortgage lien extinguished when the first mortgage holder forecloses on its mortgage, the junior lienholder will typically offered something to approve the sale. When it does so, the junior lienholder agrees to release its lien on the property at closing in exchange for the short payment. In many instances, however, the junior lienholder will reserve its right to pursue other collection actions against the borrower to collect the unpaid balance.
If the junior lienholder were to issue a satisfaction of its mortgage, however, then the junior lienholder would be prevented from pursuing further action. That is because a “satisfaction” implies that the underlying obligation which the lien secures has been “satisfied”; i.e., it has been paid in full. Absent a full payoff, the lienholder should only ever agree to execute a “release of property from mortgage lien.”
The same holds true for mechanics liens and judgments liens. If a satisfaction is issued, the lienholder will lose the right to pursue further collection actions (a claim of unjust enrichment, for example, in the case of a mechanics lien claimant, or garnishment or other enforcement actions in the case of the judgment creditor). If the lien must be extinguished, the lienholder should offer only to give a release of lien.
In other words, to borrow from the classic Rolling Stones song, if the lienholder has not been paid in full, then the lienholder should say “I can’t GIVE no satisfaction”!
Categories: real estate,law
Tags: lien release mechanics lien judgment lien lien satisfaction short sale mortgage
I am seeing more frequent banks/lenders NOT issue satisfaction of mortgage at closing.
Coming from a real estate buyer's perspective, it's important for a buyer to have a buyer's agent ask those types of questions before submitting a short sale offer on a property.
Is the seller aware or ok with the mortgage company not issuing a satisfaction of a mortgage?
Lately seeing a lot of 'short sale experts' pop up after taking a 3 hour class that have no idea what they are doing when listing property through out the Twin Cities. They really do more harm than good. Be aware and do your due diligence when looking for property.
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Jason: thanks for your comments. You make some excellent points, and I concur with you on the havoc wreaked upon the real estate market by the so-called "short sale experts", and it is this issue in particular where they fail to adequately represent their clients. When you're the seller of real estate on a short sale, there needs to be an understanding of what happens to the mortgage deficiencies. Most often it is the 2nd mortgage which is of concern because they typically receive only a fraction of the outstanding mortgage balance. I'm having to negotiate installment payment plans for at least a percentage of the deficiency with the holders of the second mortgages for my sellers (I'm usually working with investors who have defaulted on multiple loans on rental properties). For buyers, you are correct that they need to make sure that liens are released and that the lenders look solely to the seller(s) as to any deficiencies.
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