Certificates of Satisfaction Under Virginia Law or How to Get $500 out of a Lazy Lender

In Virginia, and probably in your state as well, if you were to look through the land records at your county courthouse, you’d find a series of deeds of trust (“DOT”) related to each loan that was taken out on your home. In theory, you’d also find a certificate of satisfaction (“COS”) for all loans except the current one. The COS is the official, legal way of tying up the loose end of prior loans. It tells someone reading the records that the debt related to the loan on the COS is no longer owed; it’s been completely paid. Without it, it wouldn’t be obvious that the current loan(s) you have on the property is/are the only ones still owed. So, if you refinance your home (or hit the lottery), your existing loan is paid off, and then that lender “records” (i.e., files) a COS at the courthouse. The deed of trust for your new loan (if any) is also recorded at the courthouse.

Unfortunately, most settlement companies eventually have to deal with the headache of loans for which a COS is not filed. That’s annoying and adds extra work. Fortunately, the law doesn’t approve of that laziness on the part of the lenders either, so there’s a way to discourage it. If the lender doesn’t file the COS, you can demand a $500 payment from them.

If you lived in this house, you probably wouldn’t care about the $500.00. Image available at http://en.wikipedia.org/wiki/File:This_Old_House.jpg

§ 55-66.3 of the Code of Virginia requires that once the settlement company notifies the lender that the loan has been paid off, the lender has 90 days to record the COS or provide the COS to the settlement company so that the settlement company can record it. If they don’t, the borrower can demand $500 from their old lender. Upon receiving that demand, the lender has 10 days to make the $500 payment. If they don’t make the payment within 10 days (i.e., 100 days from the notification mentioned above), the borrower can sue them for the $500, and the lender has to pay the borrower’s court costs and reasonable attorneys fees!

Of course, none of this is likely to happen until much later, when the borrower refinances the house again, but needless to say, the lender has an incentive to get it right. If you’re refinancing your property, ask the settlement company if a certificate of satisfaction was ever recorded for your prior deed of trust. If not, you might be entitled to $500. That’s certainly one way to offset your new loan’s closing costs.

As always, an article on a blog is only the first step.  There are some nuances in the law, so there’s a possibility your situation might not give rise to the $500 payment. Speak to your own attorney or settlement company about your particular situation.

For your convenience, below I’ve provided relevant portions of the law. Use the hyperlink to see the entire section.

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§ 55-66.3. Release of deed of trust or other lien.

A. 1. … If the lien creditor receives notice from a settlement agent at the address identified in its payoff statement requesting that the certificate be sent to such settlement agent, the lien creditor shall provide the certificate, within 90 days after receipt of such notice, to the settlement agent at the address specified in the notice received from the settlement agent.

If the notice is not received from a settlement agent, the lien creditor shall deliver, within 90 days after such payment, the certificate to the appropriate clerk’s office with the necessary fee for recording by certified mail, return receipt requested, or when there is written proof of receipt from the clerk’s office, by hand delivery or by courier hand delivery.

If the lien creditor has already delivered the certificate to the clerk’s office by the time it receives notice from the settlement agent, the lien creditor shall deliver a copy of the certificate to the settlement agent within 90 days of the receipt of the notice at the address for notification set forth in the payoff statement.

If the lien creditor has not, within 90 days after payment, either provided the certificate of satisfaction to the settlement agent or delivered it to the clerk’s office with the necessary fee for filing, the lien creditor shall forfeit $500 to the lien obligor. No settlement agent or attorney may take an assignment of the right to the $500 penalty or facilitate such an assignment to any third party designated by the settlement agent or attorney. Following the 90-day period, if the amount forfeited is not paid within 10 business days after written demand for payment is sent to the lien creditor by certified mail at the address for notification set forth in the payoff statement, the lien creditor shall pay any court costs and reasonable attorney’s fees incurred by the obligor in collecting the forfeiture.

D. As used in this section:

“Deed of trust” means any mortgage, deed of trust or vendor’s lien.

“Payoff letter” means a written communication from the lien creditor or servicer stating, at a minimum, the amount outstanding and required to be paid to satisfy the obligation.

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