A demand letter provides an escrow or title company with the amount needed to pay off your current mortgage. It is the actual request for a payoff statement. The payoff statement is a binding balance the existing lender must honor when the loan is paid off at close of escrow.
You'll need a mortgage coupon showing the loan number, customer service phone number, address and fax number of the demand department for the existing loan. You'll also need to provide the lender with the approximate date of payoff and a return fax number for the completed payoff statement.
Ordering the Demand
You can order a payoff demand letter either by calling the lenders automated payoff system or by faxing a completed demand letter to the existing lender. Some lenders require a borrower's authorization to complete the request. You must also provide the estimated date of closing. The date needs to be set in order for the existing mortgage company to calculate the pro-rated interest, prepayment fees, and late fees, in order to satisfy the lien. Once you order a payoff, the mortgage company must respond within 21 days.
Verifying the Demand
Once escrow or title receives the payoff back from the lender, it verifies the demand letter to make sure the loan principle balance, the principle payments and pro-rated interest to the estimated close-date are correct. Demand letter figures are good for 30 days. If the payoff is to occur after the expiration of the date on the demand letter, you must order a new demand.
Pay the Demand
When a loan closes, escrow pays off the balance due as shown on the demand letter. Escrow pro-rates the interest based on the actual date of closing. For example, if the payoff shows interest calculated to June 30, and the loan closes on June 20, escrow only pays accrued interest through June 20. Once the escrow is closed, the title company wires funds to the existing mortgage holder to pay off the loan.