By Jones Osborn II

A mortgage or deed of trust is normally recorded against real property when the property is given as security for a loan. Lenders are very careful to see that their mortgages and deeds of trust are properly recorded when they make a loan. Unfortunately, they are not always so careful about releasing their mortgage when the loan has been repaid.

This is not only unfair to the borrower, but it creates liability for the lender. Arizona law specifically requires the holder of a mortgage or deed of trust to file a release in the proper public records within 30 days of repayment. If the mortgage holder fails to do so, he is liable for any resulting damages. In addition, if the mortgage is not released within 30 days after written demand, there is also an automatic penalty of $1,000 payable to the property owner.

Payoff Statement. It is usually necessary to pay off an existing mortgage when selling or refinancing property. This is normally done through escrow. The escrow agent requests a statement from the lender stating the principal balance of the loan, the amount of interest that is accruing on a daily basis, and any other amounts owed to the lender. This information from the lender is known as a "payoff statement," or sometimes just a "payoff."

Arizona law requires the holder of a mortgage to furnish a payoff statement within 14 days after it is requested. If the holder fails to do so, he or she is liable for any damages that result plus $500. The mortgage holder may not charge more than $30 for the payoff statement.

The mortgage holder should send the escrow agent a recordable release of the mortgage along with the payoff statement, with instructions to record it when the escrow agent is prepared to forward the amount of money necessary to satisfy the existing mortgage. The escrow agent then sends the payoff amount to the holder of the existing mortgage concurrently with the recording of the release.

Release by Title Company. Sometimes, however, the release is not immediately available or is not recorded for some reason. Sometimes the lender promises to send a release later and the escrow agent closes the transaction with the release "to come." If the release doesn't come, and if the title company has actual knowledge that the mortgage has been paid, the title company may in certain circumstances sign and file a release on behalf of the mortgage holder. For this solution to be available, the mortgage must be for less than $500,000 and the mortgage holder must be given advance written notice that the title company is preparing to file a release. Although this procedure is not often used, it is sometimes a convenient way to remove from the public records a mortgage held by an inattentive or unresponsive lender.

Old Mortgages. Occasionally a title report will turn up an old mortgage that has been paid off for years but never released. The mortgage holder may have long since died or (if a corporation) become defunct, making it impossible to get a release. In this case, the law provides an expiration date so that the old mortgage does not forever cloud title. If the mortgage indicates on its face the date by which it is to be paid in full, the mortgage expires ten years after that date. If there is no such date on the face of the mortgage, it expires 50 years after it was recorded. The date can be extended if the holder of the mortgage files a notice to that effect with the county recorder before the expiration date. Once the mortgage has expired, it is the same as if it had been properly released.

Quiet Title Action. If none of the foregoing is sufficient to clear title, the property owner's last resort is an action to quiet title. This is actually a lawsuit filed in Superior Court which asks the court for a judgment that the mortgage or other cloud on the title is void and that the property owner holds clear title to the property. If successful, the judgment may be recorded with the County Recorder and is sufficient to release the mortgage or other cloud on title.

Although this is an expensive and time-consuming remedy, if it is preceded by a proper written demand along with a quit-claim deed and a check for $5.00 payable to the holder of the encumbrance, the property owner is entitled to recover his attorney's fees if his or her suit to clear title is successful. Very often the tender of the quit-claim deed with the check is sufficient to convince a recalcitrant holder of a mortgage that it is time to cooperate.

Conclusion. Anyone holding a mortgage or deed of trust that has been satisfied should promptly record a release in order to avoid penalties and claims for damages. Occasionally, an old mortgage or deed of trust will cloud title long after it has been paid in full. Arizona law provides a number of remedies to the property owner to clear his or her title.

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Note: The terms "mortgage" and "deed of trust" were used interchangeably above. Either term is intended to cover both.

Citations: A.R.S. § 33-715 (payoff statements); A.R.S. § 33-712 (penalty and damages for failure to release mortgage or deed of trust); A.R.S. § 33-707 (release by title company); A.R.S. § 33-714 (expiration of old mortgages and deeds of trust); A.R.S. § 12-1101 et seq. (quiet title).