When you purchase or refinance a home, the mortgage lender asks you to sign several pages of documents. One of these documents is the mortgage note, which is the agreement used to define the terms of the mortgage. The mortgage note includes the amount of money you have borrowed, the interest rate, the terms of the payback and the lenders right to foreclose on your home -- should the loan default. Mortgage companies file these with the county, thus making the agreement a public record.
Title Company’s Responsibility
Most mortgage closings happen at a title attorney's office or at a title company. A title policy is issued to the lender and to the purchaser of the home. This guarantees all previous liens were satisfied, eliminating any other claims to the home. This includes other recorded mortgage notes from previous mortgages. The title company researches the history of the property and verifies only the liens currently open are still reflected on the title of the home.
When a mortgage company records the mortgage note, they place a lien on the home. This process secures the mortgage company's interest in the home if forced to foreclose or if the home is sold. Any time a home sells and it has liens against it, the liens must be satisfied before the homeowner receives any of the funds. This includes mortgage liens, contractor liens or any other judgments that placed a lien against the home.
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Typically, the first lien on a home was the first one recorded. Mortgage lenders require the first lien position on title, because whoever is listed first on the title receives payment if the home is sold. This includes a second mortgage on the home that defaults and forces the second mortgage lender to foreclose on the home. When the second mortgage lender sells the foreclosed home, the first mortgage lender receives payment prior to the second mortgage lender.
Paying off the Mortgage Note
When you pay off a recorded mortgage whether it's through selling the home or refinancing the mortgage, the title company contacts the existing mortgage company and requests the payoff documenting how much remains on the loan. Often these payoffs include the cost of releasing the lien with the county. Once the mortgage is paid off, the old mortgage company files paperwork with the county, releasing their lien from the property.