Wait, My Mortgage Is Still Registered On Title?
When I speak to clients selling their home, one of the important questions I ask is whether there is a mortgage or line of credit secured against the property. Most of the time, clients will tell me there is still an amount owing on their mortgage and/or line of credit and that it will need to be paid in full on the closing date. However, sometimes clients will indicate they paid off their mortgage years ago only to find out that it is still registered against the property once we look at title. “How did this happen?” they ask.
Well, the first thing to understand is that paying off your mortgage in full does not automatically result in it being discharged from title. So, anyone wanting their mortgage discharged from title after it is paid out should confirm with their lender this will be done and request that they send a copy of the discharge once it has been registered. Most institutional lenders take a few weeks to process and register discharges so following up after about a month after submitting the request is a good idea if the registered discharge has not been received.
While having a mortgage remain on title may seem like a negative (more on that later), there can be some benefits. For example, if someone has paid off their mortgage previously but wishes to get another loan in the future from the same lender, having the mortgage registration remain on title could simplify the refinance process. The reason for this is that if the lender originally registered a collateral mortgage on title, that would not only secure any current loans with that lender, but any future ones as well. As a result, the lender could loan up to the amount of the original mortgage without having to register anything new on title (which would mean not having to pay further legal fees or disbursements).
As I mentioned above, there are drawbacks to a mortgage remaining on title. One is that a new lender will insist that any previous mortgage registrations be deleted from title. Therefore, having an old mortgage on title could delay a refinance. Also, not discharging a mortgage can cause problems when trying to sell your property. Recently, I have had a couple of sale transactions where mortgages were given decades ago (but not discharged) and trying to find the lender to confirm that the loan had been paid in full (so the mortgage could be discharged from title) was extremely difficult. In one case, the lender was an individual who passed away a long time ago and the closing date had to be delayed until a court order was obtained to discharge the mortgage from title (which was an expensive resolution to the problem).
So, if you are ever in a position to pay off your mortgage, make sure you turn your mind to whether you want it discharged from title. Otherwise, dealing with the issue at a later time can result in some potential headaches.