MORTGAGE LOANS; LEGISLATION;

MORTGAGES;

Connecticut laws/regulations;

You asked for summaries of recent legislation enacted to deal with problems associated with obtaining mortgage releases, especially from out-of-state mortgage holders.

SUMMARY

The legislature first addressed the problem in a comprehensive way in 1986 when it adopted PA 86-341. This act authorizes a licensed Connecticut attorney in good standing or a title insurance company officer to file an affidavit on the land records instead of a mortgage release when the mortgage holder or servicer did not execute and deliver a release within 30 days after the mortgage had been paid off. This affidavit, when recorded on the land records, is a release of the property it describes. The act only applies to mortgages on one to four family residences and residential units in any common interest community. It imposes a fine of up to $ 500 for filing such an affidavit for recordation knowing that it contained false information.

The legislature expanded this law in 1995 (PA 95-102). This act allows the affidavit to be filed even if the mortgage holder does not provide a payoff letter, gives the mortgage holder 60, instead of 30, days to deliver the release before an affidavit may be filed, increases the maximum fine to $ 5,000 for knowingly filing a false affidavit, and adds imprisonment of up to five years as a possible penalty. It also adds the recovery of reasonable attorney’s fees and costs to the civil damages that may be recovered when a mortgage holder or servicer failed to comply with a written request for a release within 60 days.

These two acts are codified as CGS § 49-8a, a copy of which is enclosed. Both acts are summarized in greater detail below.

In 1997, the legislature dealt with a different aspect of this situation (PA 97-267). This act designates certain people as “notification” agents in residential real estate closings involving one to four family dwellings where mortgage loans are paid off and required such agents to send a disclosure statement to the mortgage holders informing them of the payment within two business days after the closing is complete.

The law was modified in several respects in 1998 (PA 98-49). Among other things, this act requires the disclosure statement to identify either the borrowers or the mortgagors, instead of just the mortgagors, and requires it to identify the date of completion of the closing instead of the pay off date.

There are two other major laws that deal with mortgage releases. One requires a mortgagee, upon written request of the mortgagor (or his attorney or other authorized agent) to provide a written payoff statement to the person requesting it by the date the request specifies, as long as the request date is at least 10 business days from the date the mortgagee received the request. If the mortgagee does not comply, he is not entitled to collect interest that accrues after the date specified in the request. But if the mortgagee provides it after such date interest accruing after the receipt of the payoff statement may be collected. The mortgagee may not impose any fee or charge for the first payoff statement requested within a calendar year, unless the requester asks for expedited service and agrees to pay for it (CGS § 49-10a).

This law has been amended only twice in recent years. In 1995, the legislature deleted a condition limiting its applicability to assignments of a mortgage or real estate located in Connecticut (PA 95-102). In 2001, the legislature added the provision regarding fees for the first payoff statement.

The other law requires a mortgagee to execute and deliver a mortgage release to the extent of the satisfaction tendered. This requirement also applies to those who are authorized by law to release a mortgage. They must do so within 60 days from the date (1) a written request was sent to their last-know address by registered or certified

mail, return receipt requested, or (2) they received the request from a private messenger or courier service or through any other means of communication, including electronic, reasonably calculated to give the written request or a copy of it.

A mortgagee is liable for damages for whichever of the following is larger: (1) a rate of $ 200 for each week after the 60 days period expires up to a maximum of $ 5,000; or (2) an amount equal to the loss sustained as a result of the failure to execute and deliver a release within 60 days. The liability also includes costs and reasonable attorney’s fees. (CGS § 49-8)

In recent years, the legislature has amended this law by (1) allowing a written request for a release to be delivered by a private messenger or courier (PA 93-147), and (2) increasing the time for complying with the request from 30 to 60 days and establishing the maximum fine of $ 5,000, plus cost and attorney’s fees (PA 95-102).

AN ACT CONCERNING RELEASE OF MORTGAGES (PA 86-341)

The act authorizes the filing of an affidavit on the land records in lieu of a mortgage release when a “lender” (mortgage holder or servicer) does not execute and deliver a release within 30 days after the mortgage has been paid off. This affidavit, when recorded on the land records, is a release of the property it describes. The act only applies to mortgages on one to four family residences and residential units in any common interest community.

The act authorizes a licensed Connecticut attorney in good standing or a title insurance company officer to file the affidavit. It imposes a fine of up to $ 500 for filing such an affidavit knowing that it contains false information.

Also, the act eliminates the requirement that a lender send a mortgage release with a payoff statement within 10 business days from the date he receives a written request. It authorizes a lender to collect interest from the time the statement is received even if this is more than 10 business days after it was requested.

When the Affidavit Can be Filed

The act authorizes an attorney or title insurance company officer to file an affidavit on the land records only if a “mortgagee” does not execute and deliver a mortgage release to the mortgagor (borrower) or his agent within 30 days after receiving the mortgage payoff. The act defines the term “mortgagee” as the original lender, the mortgage holder of record, or the mortgage servicer. A “mortgage servicer,” under the act, is the last person to whom the borrower has been instructed to send his mortgage payments. The term also includes the person that sent the payoff statement.

Legal Effect of Recording the Affidavit

An affidavit that complies with the act, when recorded on the land records, is a release of the mortgage on the property described in the affidavit.

The act requires the town clerk to index the affidavit in the name of the original lender, the last recorded assignee of the mortgage, and the borrower.

What the Affidavit Must State

An affidavit filed pursuant to this act must include a statement that:

1. the person signing the affidavit (affiant) is a Connecticut licensed attorney in good standing or an authorized title insurance company officer, and the affidavit is made by or at the request of the borrower;

2. the mortgagee has provided a payoff statement;

3. the affiant has determined that the mortgagee has received payment in accordance with the payoff statement as evidenced by a check that has been negotiated by the mortgagee or by some other documentary evidence;

4. it is more than 30 days since the mortgagee was paid off;

5. the affiant gave the mortgagee at least 15 days written notice of his intention to record an affidavit pursuant of the act, with a copy of the prepared affidavit attached; and

6. the mortgagee failed to respond to the notification or that any request for additional payment made by the mortgagee has been complied with at least 15 days prior to the date of the affidavit.

It must also include the names of the borrower and mortgagee, the date of the mortgage, and the volume and page of the land records where it is recorded, and similar information for any recorded assignment of the mortgage.

The affiant must attach to the affidavit photocopies of the documentary evidence that payment has been received by the mortgagee, including the mortgagee’s endorsement of the check and a photocopy of the payoff statement. Also, he must certify on each that it is a true copy of the original.

Duty to Send Release and Payoff Statement Within 10 Days of Request

Under prior law, if a real estate mortgage was assigned, the assignor or assignee had to provide a mortgage release and a payoff statement within 10 business days from the date it was requested in writing by an attorney or financial institution. If they did not, the assignee was not entitled to any interest on the loan accruing after the 10-day period.

The act eliminates the requirements that a mortgage release be provided within 10 business days. If the payoff statement is not received by a date specified in the request and this specified date is at least 10 business days after the request is received, the act prohibits the collection of interest from the specified date until the date the statement is received. The act puts the burden of proof on the borrower as to whether or when the mortgagee received the request for a payoff statement and on the mortgagee as to when the payoff statement was received by the borrower. Also, the act specifies that the written request for a payoff statement be sent to the mortgagee and permits the request to be made by the borrower, his attorney, or other agent.

AN ACT CONCERNING RELEASE OR SATISFACTION OF A MORTGAGE LIEN (PA 95-102)

This act expands the law that allows an attorney or title insurance company executive to file an affidavit on the land records in lieu of a mortgage release when the mortgage holder does not provide the release. Specifically, it allows the affidavit even if the mortgage holder does not provide a payoff letter. The act gives the mortgage holder 60, instead of 30, days to deliver the release before an affidavit may be filed.

The act increases the maximum fine, from $ 500 to $ 5,000, for filing an affidavit on the land records with actual knowledge that the information and statements it contains are false and adds imprisonment of one to five years or both fine and imprisonment.

It alters the law that imposes civil liability for failing to provide a release of a mortgage, attachment, or lis pendens notice in a timely fashion. It (1) doubles the time for compliance, (2) enhances the civil liability for those who fail to comply with a written request for a release within the required time by allowing them to recover costs and reasonable attorney's fees, and (3) allows the release request to be made electronically.

By law, the civil liability is either payment of the actual damages sustained, or $ 200 a week for each week after the time for compliance has expired, whichever is greater. The act limits the $ 200 a week liability to a maximum of $ 5,000.

The act allows property owners to seek a court judgment that the unreleased mortgage has been satisfied more quickly. It does this by reducing the waiting period from 17 to six years after the time specified in the mortgage for its full performance.

Finally, the act reduces, from 60 to 40 years after full performance was due, the time after which an unreleased mortgage is invalid under certain circumstances.

Filing Affidavit in Lieu of Release

The act allows an attorney or title insurance company officer to file an affidavit on the land records in lieu of a mortgage release when a mortgage holder (mortgagee) does not provide a payoff letter, if the mortgagee has received an amount based on the mortgagor’s good faith estimate of the balance owed. The estimate must be calculated using a statement from the mortgagee indicating the outstanding balance due as of a certain date and a reasonable estimate of the per diem interest and other charges due.

What the Affidavit Must State

When the mortgagee does not provide a payoff statement, the affidavit filed pursuant to the act must include a statement that:

1. the person signing the affidavit (the affiant) has determined that the mortgagee has been paid in accordance with a good faith estimate by the mortgagor of the amount of the unpaid mortgage balance calculated as required by the act;

2. the mortgagee has not provided a mortgage payoff statement requested in writing by the mortgagor, his attorney, or other authorized agent; and

3. more than 60 days have elapsed since the mortgagee received the payoff amount.

Prior law required the affidavit to state that it was made on behalf of and at the request of the mortgagor. The act allows it to state, instead, that it is made on behalf of and at the request of the current property owner.

The act allows the affidavit to indicate that the mortgagee was paid by a title insurance check or a wire transfer of funds. By law, the affiant must indicate that he had given the mortgagee at least 15 days' written notice of his intention to record the affidavit. The act requires the affidavit to specify that the written notice was sent by registered or certified mail, postage prepaid, return receipt requested.

Attachments to Affidavit.

By law, the affiant must attach to the affidavit photocopies of documentary evidence that the mortgagee received payment. When there is no payoff statement, the act requires the affiant to attach a copy of a statement from the mortgagee that the mortgagor has indicated the outstanding balance due as of a certain date and a statement setting out the mortgagor's basis for the estimate of the amount due.

Person for Whom Affidavit May be Recorded.

By law, any attorney or title insurance company officer may execute and record the affidavit on behalf of the mortgagor or anyone to whom he transfers his interest. The act also allows them to execute and record it on behalf of anyone who acquired any portion of the mortgaged premises.

Indexing of Affidavit

By law, the town clerk must index the affidavit in the names of the original lender, the last mortgage holder of record, and the mortgagor. The act requires that the clerk also index it in the name of the current owner of record.

Duty to Provide a Payoff Statement

By law, whenever a written mortgage assignment is made, the mortgagee must, on the written request of the mortgagor, his attorney, or agent, provide a written payoff statement on or before the date specified in the request, provided the requested date is at least 10 business days from the date the mortgagee received the request. The act makes this duty apply even where there has been no assignment.

Release Requests, Time Frames, and Liability

The act gives mortgage lenders and those who filed an attachment or lis pendens notice 60, instead of 30, days after a written request is sent or delivered by messenger or courier service to prepare and deliver a release to the property owner before they are civilly liable to any aggrieved person. By law, the written request for a release may be conveyed, carried, or delivered by private messenger or courier service or sent by registered or certified mail. The act also allows the person requesting the release to use any other means of communication, including electronic communication, reasonably calculated to give the entity or person from whom the release is sought a written request or a copy of one. The act gives the aggrieved person the right to recover costs and reasonable attorney’s fees incurred in enforcing such civil liability.

Invalidity of Old Mortgages

Under prior law, when the land records had a mortgage that had not been released and the mortgagor or those who owned the land had been in undisputed possession for at least 60 years after the mortgage should have been paid off, the mortgage was presumed invalid if the person in possession of the land filed an affidavit that satisfied certain conditions in the land records. The act reduces the time from 60 to 40 years and makes the mortgage invalid instead of establishing a presumption that it is invalid.

AN ACT CONCERNING ATTORNEYS AND THE CLIENT SECURITY FUND (PA 97-267)

This act institutes several measures to deter and detect attorney misuse of client funds and, in some instances, to compensate client victims. Among other things, it designates certain people as “notification agents” in residential real estate closings where mortgage loans are paid off and requires them to send a disclosure statement to the mortgage holders informing them of the payment within two business days after the closing is completed; and

Residential Real Estate Closings

The act requires designated “notification agents” at real estate closings in which a mortgage loan for a one- to- four-family dwelling is being paid off to send a disclosure statement to the mortgage holder informing it of the payment. (The mortgage holder is the servicer or owner of the mortgage being paid off. ) The act designates the following people as notification agents:

1. the buyer’s attorney, if the seller is represented by a separate attorney who agrees to transmit the payment to the mortgage holder;

2. the seller’s attorney, if the buyer is represented by a separate attorney who agrees to transmit the payment to the mortgage holder;

3. the seller, if he is not represented by an attorney and the buyer’s attorney agrees to transmit the payment to the mortgage holder; or

4. the new lender, if the loan is being refinanced and the mortgage holder’s attorney also represents the new lender.

The act requires the notification agent to prepare a disclosure statement, have it signed by the parties to the closing or their attorneys, attach a copy of the mortgage payoff statement, and send them within two business days of the closing’s completion to the mortgage holder by certified mail, return receipt requested, or overnight carrier.

The act requires the person or entity responsible for securing the mortgage payoff statement or other written authorization provided by the mortgage lender to transmit a copy of it in a timely manner to the notification agent, but no later than the closing date. (A mortgage payoff statement indicates the amount of the unpaid balance on the mortgage loan, including principal, interest, and other charges, and the per diem interest due for the unpaid principal. The law imposes no duty on any particular person or entity to secure the statement. But in virtually all closings, the seller or his attorney obtains it from the lender, his assignee, or the mortgage servicer. )

The disclosure statement must contain the following information not already provided in the payoff statement: the identity of the mortgage, mortgagors’ names, loan number, property address, and payoff date. It also must include the notification agent’s name, address, telephone and fax numbers, if available, and advise the mortgage holder to notify the notification agent if the holder does not receive the funds within five days of the payoff date. The act provides a sample format that notification agents may use for the disclosure statement.

AN ACT CONCERNING THE SIMPLIFICATION OF THE MORTGAGE PAYOFF NOTICE PROCESS (PA 98-49)

This act makes several changes to the law that requires designated “notification agents” at real estate closings in which a mortgage loan for a one- to four-family dwelling is being paid off to send a disclosure statement to the mortgage holder informing it of the payment.

Specifically, the act:

1. eliminates the requirement that all parties to the real estate closing or their attorneys sign the disclosure statement;

2. authorizes the notification agent to send the statement by a confirmed facsimile transmission;

3. defines the phrase “the date of completion of the closing” as the date the payoff funds become available to send to the mortgage holders (By law, the notification agent must send the disclosure statement to the mortgage holder within two business days of this date. );

4. requires the disclosure statement to identify either the borrowers or the mortgagors instead of just the mortgagors;

5. requires the disclosure statement to identify the date of completion of the closing instead of the payoff date; and

6. requires that the disclosure statement direct the mortgage holder to alert the notification agent if it does not receive funds within five business days from the date of completion of closing instead of from the payoff date.

GC: eh/ts/ro