CHRIS KEHOE
Problems cleared up
As Massachusetts’ mortgage discharge law nears its first anniversary on July 1, its creators are pronouncing it a success.
“This has cleared up a whole bunch of problems,” said Chris Kehoe, a real estate attorney with the Boston-based firm Robinson & Cole and past president of the Massachusetts Real Estate Bar Association, or REBA, which lobbied heavily for the law.
Kehoe said the law, titled “An Act Providing Remedies to Consumers for Clearing Title After Payoff of Mortgages,” was meant to serve as a deterrent against sloppy record-keeping during mortgage discharge, or payoff, transactions, he said.
During the most recent refinance boom, many property sales were held up when closing attorneys couldn’t document that all prior loans on a property had been paid off.
Today, Kehoe said, “I see mortgage discharges being recorded more quickly than in the past, which helps consumers.”
That’s because the law defines who is responsible for recording a mortgage payoff and makes them liable if it is not recorded, said Edward Smith, legislative counsel for REBA and a Boston real estate attorney in private practice, who helped draft the legislation.
“There were thousands and thousands of titles that were encumbered” when the mortgage payoffs weren’t recorded, Smith said. “Lawyers were spending a lot of time chasing [discharges]. We now have one of the most comprehensive revisions of mortgage discharge laws in the country.”
The law has several components. What many believe to be key are the new penalties imposed on lenders who do not record mortgage discharges, or provide statements proving a mortgage has been paid off to those who request them, in a timely manner.
A lender who has discharged a mortgage on a Massachusetts property must now provide a statement to that effect within five business days to any party involved in a sale, or face a penalty of at least $500.
The law also imposes a penalty of at least $2,500 – or actual damages plus attorneys’ fees – on lenders who do not record paid-off loans within 45 days.
Penalties are recoverable by whoever is affected by the fact that a discharge was not recorded, Smith said. That could be a seller, a buyer or a successor in title, among others, he said.
The law also allows the most recent lender on a mortgage being paid off to certify that every prior lender was paid off, which saves consumers money and time paying lawyers to track the information down from each past lender.
The law also allows unresolved mortgage discharge issues that are more than 35 years old to “disappear,” according to Kehoe. Before, payoffs had to be proven back 50 years.
‘Good Procedures’
Ed Wheeler, a former real estate lawyer who is now first assistant register at the Middlesex South Registry of Deeds in Cambridge, where property sales are recorded, called the new law “pro-consumer” and important because “it enforces good bookkeeping.”
Wheeler said registers didn’t actively lobby for the law but still care about its progress, as they hear regularly from consumers who are impacted when a property sale is held up because a mortgage payoff wasn’t recorded.
Lenders typically won’t allow a home to be sold until the seller can prove all outstanding mortgages – even ones taken out by prior owners – have been paid off. Wheeler, who is also the attorney for the Middlesex South Registry, said he gets two to three calls a week from sellers with that problem.
The problem may have arisen in part during the state’s white-hot real estate market earlier in the current decade, he suggested, when some lenders’ lawyers were recording (or supposed to be recording) mortgage payoffs on as many as three home sales or refinances a day, but didn’t always get it done.
Until last year, Massachusetts had no set penalty for lenders who did not record a payoff, Smith said.
The problem was compounded further in the last couple of decades when banks merged, laws changed and lenders began servicing each others’ loans, meaning more difficult-to-track-down, out-of-state lenders got involved.
In fact, Smith told Banker & Tradesman, 80 percent of mortgage financing in Massachusetts now involves out-of-state lenders.
A couple of them called Massachusetts shortly after the law was enacted to argue that it couldn’t be enforced against them, Smith said. But the state can enforce it, he noted, since laws that deal with the release of mortgages are specific to where the land is located.
The law also puts Massachusetts on more of a level playing field with other states that already penalize failure to file a mortgage discharge.
In fact, the Bay State is now closer to the middle of the pack in terms of the severity of the penalties, according to Kehoe.
“Now, lenders address the problem more quickly, and that helps lenders in this state close deals they want to without problems created by out-of-state lenders,” he said.
One Lexington real estate lawyer said she, like Kehoe, has seen mortgage discharges recorded in a more timely manner in recent months.
The new law might be part of the reason, added Jennifer Staples, but so might the recent cooling of the real estate market, which could mean that lenders have more time to record them.
Smith countered that when the real estate market cools, lenders probably have fewer staff to record discharges.
Kurt Stuckel, a title search attorney in Pepperell, said he thinks it’s too early to tell the effect such a new law will have.
“Through the grapevine, I’ve heard that lenders do care, that they take this law seriously,” he said. “But only time will tell exactly how effective it is.”
