Thursday, September 23, 2010

"Reinstating" a mortgage

A major national lender contacted us with a question about "reinstating" a mortgage. The lender had erroneously recorded a discharge of a mortgage and is now trying to "reinstate" the mortgage. It seems that the lender's standard way of doing this is to send a letter to the registry stating something like "We erroneously send a discharge of [this] mortgage to your registry; Please reinstate our lien." I don't recall any such document being recorded here and I'm not quite sure what the lender would have to do to revive the mortgage. Since we are just the recording office, I don't have to judge whether the lender's approach does what it purports to accomplish. Still, it's an interesting issue.

The problem that I see concerns the nature of a mortgage. In Massachusetts, a mortgage is a conveyance of an interest in real estate. The borrower conveys to the lender an interest in the property so a mortgage is technically a deed and all deeds must be notarized to be recorded. When the mortgage is paid off, the lender conveys that interest back to the borrower. That document - the discharge - must also be notarized because it is a conveyance of an interest in real estate. My point is not that the "reinstatement" document needs to be notarized - my point is that if the bank has conveyed its interest in the property back to the borrower whether that was inadvertent or not, I'm not sure that the bank can unilaterally reinstate the loan. If the property interest went back to the homeowner, doesn't the homeowner have to convey that interest back to the bank to accomplish what the lender wants? If I learn anything more on this topic, I'll do a follow-up blog post.


Jeff Welch said...

I've seen this once or twice before. It was a few years ago, but I think the bank went to Land Court or Superior Court and got a judgment to record. It may have been a case in equity. That's my recollection, anyways.

Sarah Correia said...

Interesting banks make mistakes but almost always in their favor. Jeff's idea that it may have been a case in equity makes sense.

In any case, the national lenders seem to be relying on the registries to check their work. When JP Morgan Chase made mistakes filing my mortgage discharge (they had gotten the address quite wrong and also stated that the mortgage had been filed ten years after it was originated) I contacted them and supplied enough documentation to make them reissue it with the mistakes corrected.
The woman at JP Morgan told me that they thought the registry checked everything for them and proofed documents against their records so JP Morgan doesn't have to check it themselves. She told me she called the Suffolk Registry to ask why they accepted it. In other words the big banks are getting sloppy and expecting others to help them check everything.