Under Virginia law, any lender who is secured by a lien against real estate must release that lien within ninety (90) days of the date that the debt is paid off in full. Section 55-66.3(A)(1) of the Code of Virginia (1950, as amended). If they fail to do this, they must pay to the borrower a fee of $500 upon demand.
This rule pertains to any lender, any type of borrower, and any type of real estate. There is no defense that I know of for failure to release. The public policy reason for the law is so that land owners can quickly obtain clear title to their property. If the lender does not pay the $500, they will be liable for court costs and attorneys fees expended to pursue collection of the fee.
The release of a lien is most typically accomplished by the preparation and recording of a Certificate of Satisfaction, which is a one-page form that references the original deed of trust or memo of lien. Sounds pretty simple, but some lenders just don't get around to it.
With interest rates at 50-year lows, many smart borrowers are choosing to refinance their mortgages to take advantage of lower payments. And are paying off old loans.
Just last week, I settled a client's claim against a lender whom I shall call Behemoth Bank. The Bank did not release the lien in the 90 days and refused to cough up the $500 when we sent them a demand letter for it. Even after we filed suit against them in General District Court and reiterated our demand, they proceeded to defend the claim all the way to the day before trial. They ended up paying my client the $500 and significant legal fees incurred to perpetuate their mistake. I have another two claims against Behometh Bank that I am handling for another client who refinanced and did not have their old liens released anywhere near the 90-day period.
If you are paying off a lien for any reason, mark your calendar for 90 days after the lender receives your funds. If there is no release, you can make an easy $500 from your lender. Now, how often does that happen?
UPDATED AUGUST 27, 2010: Today, I settled another two cases against Bank of America based on their failure to release liens against my client's property within the 90 day period after they refinanced.
Tuesday, July 27, 2010
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