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The Mortgage Satisfaction Act
E. A. Sandy Dixon, Jr., Esq.
BACKGROUND
Mortgage banking has changed considerably since many of Pennsylvania’s laws concerning the recording and satisfaction of mortgages were written. The days of paying off your mortgage at the local bank and being handed back a satisfaction piece are over. A mortgage is now often assigned many times and may be serviced by yet another institution, few, if any, of these assignments appearing of record. Lenders may image the documents and not even keep the originals, making the recording of a satisfaction piece in Philadelphia impossible.
Many lenders are multi-state and have had difficulty adapting to Pennsylvania’s arcane method of satisfying mortgages: a two step process (in counties other than Philadelphia) where the lender has to request a certified copy of the mortgage from the Recorder of Deeds, then send it back to the Recorder with the satisfaction piece. This system is not conducive to fast satisfaction of mortgages.
Another serious problem is that many lenders over the years have merged into other companies, have gone out of business, or have just disappeared. In all these cases getting a satisfaction piece is difficult if not impossible.
For all of these reasons, it was necessary to make some changes in the law to reduce the vast number of unsatisfied mortgages on record. It is clearly not in a consumers’ interest not to be able to sell their house because a mortgage put on the property by the person who sold to them is still on record. Inter-company indemnities between title insurance companies may temporarily ameliorate the situation, but they do not clear the title, which remains unmarketable.
This act takes a first step in correcting the problems with satisfactions. The Mortgage Satisfaction Act, Act of December 9, 2002 (PL, No.2002-197), was signed by the governor on December 9, 2002 and is effective February 7, 2003. This act is the result of 4 years work primarily by the Pennsylvania Land Title Association and the Pennsylvania Bankers Association, with important input from a committee of the Pennsylvania Bar Association and from The Pennsylvania Recorders of Deeds Association. It is the result of many compromises.
The Act applies to all mortgages existing on the effective date that have not been satisfied of record and all mortgages entered into after the effective date of the Act and consolidates all statutory provisions concerning mortgage satisfactions in one act.
PENALTY PROVISIONS
The current law, 1715, May 28, 1 Sm.L. 94, s 10 (21 P.S. s 682), provides that after payment in full and 45 days notice, a mortgagee who has not satisfied the mortgage of record is subject to a penalty up to the amount of the mortgage.
The Mortgage Satisfaction Act retains these penalty provisions with a few refinements:
- The form of the notice to the mortgagee is spelled out.
- The Act details how the service of the notice is to be made: certified mail to the office of the lender designated in the payoff statement. If no such address is provided, alternatives are laid out.
- The time period for compliance has been changed from 45 days to 60 days.
- The Act now expressly prohibits class actions.
- The Act now rules out multiple causes of action for the failure to satisfy one mortgage; that is, there is one cause of action no matter how many notices are sent and how many times the mortgagee does not respond correctly.
SATISFACTION PIECES
The use of satisfaction pieces is continued under the Act. The form of the satisfaction piece is laid out in the statute to make the form uniform statewide. The form has been modernized to allow for mortgagees that are, for example, LLC’s, to acknowledge the instrument.
The satisfaction piece method of satisfying of mortgages applies to both commercial and residential mortgages. There are many changes regarding recording of satisfaction pieces, which are discussed below. The law of who may record a satisfaction piece is changed significantly. A sat piece may be recorded by the mortgagee of record, an assignee of record, an assignee not of record, a nominee (MERS, for example), or a servicer. A chain of assignments no longer has to be of record.
SETTLEMENT OFFICER SATISFACTIONS
Clearly the most radical change to be brought about by the Act is the ability of the person who pays off a mortgage at settlement to satisfy the mortgage when the lender does not. This procedure applies only to “residential mortgages”:
“A mortgage creating a specific lien upon real estate within this Commonwealth containing four or fewer residential units, including residential condominium or cooperative units.” This definition is similar to those found in the Truth In Lending Act and RESPA.
Only a “Settlement Officer” may record a Settlement Officer Satisfaction: that is, a natural person who is a licensed title agent, an employee of an underwriter, or an attorney who conducted the closing or who “directly supervised” the closing in which the mortgage was paid off. The mortgage must be paid off in full in accordance with the terms of the payoff statement. If the mortgage being paid off is open end, the mortgagee must have been instructed in writing at the time of payoff “to close and decline any further advances” under the loan. While the Act does not require that writing be signed by the borrowers, prudence would dictate the practice.
The first step in the SOS procedure is that a notice be provided by the Settlement Officer to the lender demanding that the mortgage be satisfied of record. There are several additional pre-conditions and requirements:
- 90 days must have elapsed since the mortgage was paid off.
- The mortgage has not been satisfied of record.
- The notice (NOTICE OF INTENT TO RECORD SETTLEMENT OFFICER SATISFACTION WITHIN 60 DAYS) must be substantially in the form found in the statute and be sent by certified mail to the address on the payoff statement.
- If the mortgagee has not satisfied the mortgage within 60 days of the receipt of the notice, the SOS may be recorded.
- The form of the SOS is provided in the statute and is in affidavit format. Attached to the SOS there must be evidence of payment (such as a copy of the canceled check), and a copy of the Notice of Intent together with a return receipt showing date of delivery to the lender.
- A copy of the SOS must be sent to the mortgagee.
- No OBJECTION has been recorded nor received by the Settlement Officer.
The recording of a SOS has the same effect as the recording of a satisfaction piece – unless the lender records an Objection. At any time within 6 years of the date of the recording of a SOS, when there are still outstanding obligations secured by the mortgage, the lender may record an Objection. There is no particular form for an Objection but it must recite the reasons why it is being recorded and must be acknowledged. The effect of recording an Objection is to totally negate the SOS, as if it had never been recorded. However, bona fide purchasers, mortgagees, and judgment creditors are protected in relying on the SOS if their deed, mortgage, or judgment is recorded prior to the Objection.
The SOS procedure is not mandatory under the Act, which provides that the settlement officer has no duty to anyone to employ the procedure and cannot be liable for not using it.
CHANGES IN RECORDING PROCEDURES
Recording officers are not liable for any mistakes found in any satisfaction pieces or settlement officer satisfactions and are no longer required to mark satisfaction on the margin of the copy of the satisfied mortgage in the recorder’s office. The latter provision merely reflects the reality of how many recorders now record mortgages using image systems which do not permit marginal notations.
The Act eliminates the requirement in Philadelphia that a satisfaction piece be accompanied by the original mortgage and in the other counties be accompanied by a certified copy of the mortgage. This provision was intended to set up a streamlined statewide system. However, any recorder may opt out of the general rule and adopt the Recording Validation Procedure. The recorder must notify the public of such election by publishing such in the County Recorder’s Yearly Fee Schedule or Fee Bill.
If the Recorder in a particular county elects the Recording Validation Procedure, the mortgagee or settlement officer may elect any of the following procedures:
Have the satisfaction piece or SOS accompanied by the original mortgage; or,
Have the sat piece or SOS accompanied by “a legible image of the first page of the mortgage”; or,
Send in the sat piece or SOS together with an extra fee without an original or a copy of the mortgage.
The language of the second alternative is to permit not only conventional copies but also electronic copies. The amount of the extra fee is not set by the Act.
CONCLUSION
The Act was not intended to be nor is it the final answer to the mortgage satisfaction problem. It is, however, I hope, a first step on the path to many needed reforms in real property law. Considering the tribulations that Senate Bill 14 and its predecessor bill went through in order for Act 197 to become law, it’s going to be a long process.
Mr. Dixon, a member of the Pennsylvania Bar, was a co-drafter of Act 197. He is a member of the Legislative Committee of the Pennsylvania Land Title Association and counsel at Stewart Title Guaranty Company in Wayne, Pennsylvania.
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