Releases of Deeds of Trust

Thomas S. Mowle

El Paso County Public Trustee

Release of Deed of Trust

• Principles behind release process

• Required and supplemental elements

• Processing and rejection

Release Principles

• Deed of Trust

– Property owner GRANTS a lien to the lender

– Lender BENEFITS from that lien

– Trustee takes to foreclosure upon Election & Demand

• Release

– Required within 90 days of satisfaction (38-35-124)

– Holder of evidence of debt GRANTS the release

– Trustee validates the request for release

• Unlike foreclosure, release is consensual

Release Review Goals

• Does release comply with statutory requirements? – Legal requirements are very few, and mostly implicit

• Request must be signed/notarized

• Production of original note, or indemnification

• Payment

• Production of a copy of the recorded Deed of Trust

– No explicit requirement to review/compare documents submitted • The deed of trust SHALL be released upon receipt of documents

• The release SHALL be caused to be recorded IMMEDIATELY upon execution

• Contrast with 38-38-102 requirement to review foreclosure filing

• At the same time, don’t do holder’s work – Don’t retrieve the Deed of Trust or POA yourself

– Don’t “fix” errors in the release form

Release Review Goals

• So why not just rubberstamp and move on?

• Will release be effective? – Will release index to the correct Deed of Trust in County records?

– Will release remove lien from the desired property (and no other)?

– Could release be later questioned and rejected, leaving lien in place?

• However: – Excessive scrutiny harms the borrower

– Lender has little incentive to fix errors quickly (legal penalty weak)

Release Documents

• 4 Required Items – Request for Release of Deed of Trust

– Copy of Recorded Deed of Trust

– Payment: $15 for release (+ recording costs)

– Original Evidence of Debt, or substitute

• Supplemental Items – Power of Attorney/Agency

– Estate Paperwork

– Platting Information

– Re-recording/Modification of Deed of Trust

– Affidavit of Discrepancy

Release Form

• 38-38-107/108: – “written request…may be in substantially the following form.”

– “May” is very permissive

– “Substantially” is vague

• How El Paso does it – For release WITH production, we are very flexible, including old forms

– Release WITHOUT production must cite current statutes and language • Current indemnification is 38-39-102(3)(a)/(b)/(c)

• Old forms reference 38-39-102(3.5) which no longer exists

– Request may omit unused options (a/b/c, full/partial, fully/partially)

EPC201500598

Release Form

• Release “should” include address of borrower, for recorder – (1)(a)(IV): For release with production, PT must have

• Current address of original grantor, assuming party, or current owner OR

• Written statement that they have no record different than the property address

– (1)(a)(IV): … EXCEPT we may release even without that information

– Subs to (3) suggest no exemption to address rqmt if w/o production • Recommended Guidelines say to apply the same discretion as above

• Release “should” mark full or partial – If unmarked, recorder will index as full

– Reject if partial described but box not marked • Recorder won’t check, will just assume full

• Modifying other people’s signed/notarized documents is not within our authority

• Release “should” be addressed to you in your county

Release Review

• How closely must identification lines match the Deed of Trust? – Reception info (number, or book/page) absolutely MUST match

• This indexes release to Deed of Trust in the public records

• If handwritten, make sure it is very legible

– Names of Parties • Close enough to assure you have the correct Deed of Trust

• 38-35-116 allows for certain variances in names

• Accepting errors in names is a judgment call

• MERS is almost never the original lender

– Dates of Deed of Trust and recording • Close enough to assure you have the correct Deed of Trust

• Accepting errors in dates is a judgment call

– Date of release request – we ignore (notary provides actual date)

Full/Partial Release

• Listing of legal description – If release marked “full”

• Legal description should be blank, or match the legal from the Deed of Trust

• Reject release if partial legal described – will index as a full release

– If release marked “partial” • Legal description should be a portion of legal on Deed of Trust (not letter-perfect)

• Reject release if full legal shown – will index as only a partial release

• Reject release if description is left blank, or “negative” (release everything except X)

• Partial release of lot from metes and bounds – Use platting information to verify that lot probably was encumbered

• Partial release of property added via modification of DoT – Release is from original DoT; request modification to verify addition

• Partial release of unencumbered property is meaningless

Indemnified Releases

• (3)(a) Qualified Holder covers damages if note later presented – Qualified Holders defined in 38-38-100.3(20); include:

• State/National Bank (except credit-card banks) or Federal/Colorado Savings & Loan – Lists at http://www.occ.gov/topics/licensing/national-bank-lists/index-active-bank-lists.html

• Supervised Lender that is publicly held or a subsidiary/parent – ensure not expired! – List at http://www.coloradoattorneygeneral.gov/departments/consumer_protection/uccc_car/uccc

• Federal Housing Administration approved mortgagee – Search at http://www.hud.gov/ll/code/llslcrit.cfm

• Colorado/Federal Credit Union – Search at http://researchcu.ncua.gov/Views/FindCreditUnions.aspx

• Agency or Department of the Federal Government (HUD, VA)

• Loan-oriented entity created/sponsored by state/federal govt (Fannie Mae, CHAFA)

• Currently-certified Community Development Financial Institution – Search at http://www.cdfifund.gov/awardees/db/index.asp

• Any of the above, acting as agent/nominee/trustee for someone else

– QH not required to specify type, but can ask for evidence of it

– MERS Can’t Indemnify

Indemnified Releases

• (3)(b) Holder buys insurance to cover damages, signs release – Corporate Surety Bond, aka Lost Instrument Bond must include

• Parties and recording information for the Deed of Trust being released

• Signed by (alleged) holder of the note as principal

• Signed by insurance agent, accompanied by Power of Attorney from insurer

• Be valued at 1.5 times the original principal shown on the Deed of Trust

• Must be valid for at least 6 years

– Bonding agent has evaluated risk; premium fixed by state (0.9%)

– If evidence of debt appears • Usually Public Trustee must file claim through insurer, and pass through to holder

• Some Bonds grant 3rd party right of action, so holder can claim directly

– What to do with bond • We keep original for 7 years (not sure this is necessary)

• We record copy of bond with release

Indemnified Releases

• (3)(c) Colorado Title Insurance Company signs release – In this case, actual current holder is not shown on release form

– Search for title insurance companies at https://www.sircon.com/ComplianceExpress/Inquiry/consumerInquiry.do

Signature of Holder

• Signature of requestor – ALL holders if private party – Top line is name/address of holder, or of title company

– 2nd line is name/title of officer of holder/title company

– Or 2nd line is name/title/affiliation of holder’s agent or attorney

• Proof of authority? Not required by law – We require copy of POA and review for actual authority

• POA either must be recorded, with reception number on DoT OR

• We record POA with the release

– We require bar number of a “real” attorney

– We require authority to sign for estate, and record with release

– We require proof if borrower claims to be officer of holder or trust

• If some holders are dead, we record death certificate

Signature of Holder

• What if “we can’t find the holder”? – Not an option for borrower to sign release, even with bond

– Borrower may • Try harder to find holder

• Find a title company to sign off under (3)(c) – possible if refinanced

• File a quiet title action in the courts

• Wait until 15 years after final payment is/was due – 38-39-201

• What if “the holder won’t sign”? – Borrower may remind holder of obligation under 38-35-124

• Holder must request release within 90 days of satisfaction

• If borrower goes to court to compel, court will force holder to cover losses

Notary Block

• Must show name and title as shown in signature block – Notary should be verifying authority to sign

– In practice, we accept as long as title shown in notary or signature

• Notary not required for Colorado attorney with bar number

• California notary – Separate paper showing that person signed something sometime

– We require supplemental information linking signature to release

Copy of Deed of Trust

• Need a copy of enough to match it to the release – Verify names match release

– Verify grant to a public trustee • OK if blank, or wrong county, or names public trustee by name

• Reject if names another person, company, or organization as trustee – Per 38-39-101, must release as mortgage under 38-36-161

– Changing this would require approval of private trustee

– Verify property is in your county • Only if no legal description, use address for location

• If no address nor legal… DoT is void, might as well release

• Can only release Deeds of Trust – Release of original covers modifications, re-recordings

– Cannot release assignment of rents, modification

– Can release hybrid documents if include grant to public trustee

Copy of Deed of Trust

• Must be recorded in your county, for property in your county – Copy must show recorder’s notation, not just servicer stamp

– If not recorded in your county, under (8.5) holder: • Records Deed of Trust in your county

• Requests release of that Deed of Trust from you

• May re-record that release in the other county without going to that PT

– If recorded in your county but property in another, holder: • Records Deed of Trust in the correct county

• Requests release of that Deed of Trust from the other county

• May re-record that release in your county without going to you

Evidence of Debt

• Unless indemnified, must have original document – Usually, but not always a “promissory note”

– Deeds of Trust may cover any kind of obligation

• Reviewing evidence of debt – Verify original as best you can – not clearly a copy

– Verify that document matches what is described in Deed of Trust

– Does not need to be marked in any way: (2) contradicts (1)(a)(II)

– If current holder not the original holder • Verify chain of assignments from original to current

• Law now says just “holding” a note doesn’t make you the “holder”

• Exception: non-monetary obligation – Deed of Trust may require completion of an action (developers, often)

– Release with modified form under (5)

Evidence of Debt

• What if “there never was a promissory note”? – Verify that not a non-monetary obligation

– Show requestor the part of the Deed of Trust that describes the evidence of debt

– Very unlikely that a Deed of Trust would not state the borrower’s obligation

• What if “we can’t find the original note”? – Borrower/lender may:

• Try harder to find it

• Buy a lost instrument bond

• Seek release through the courts – court should release, not tell you to break law

• Find a title company willing to sign off on release – possible if refinanced

• What if note doesn’t match the Deed of Trust – Assuming Deed of Trust does not describe a non-matching note

• Small discrepancies may be covered by holder’s affidavit recorded with release

• Major discrepancies probably mean note provided is not the right one

“Non-documents”

• Items sometimes used by some counties in the past

Affidavit of Multiple Deeds of Trust securing a note

Affidavit of Multiple Notes secured by a Deed of Trust

Affidavit of Release without Cancellation of Note

• None of these are necessary under current law and form

Payment

• $15 for release, plus recording fee ($11 + $5/additional page) – Cash, check, credit card, or contract agreement with servicer

– If self-recording, only $15 – have releaser sign copy of release

• Refund any excess payment to party providing the release

Processing

• Review releases in order received – Different queues for paper, Simplifile, Kuvera/Ingeo OK

– Best to handle private party walk-ins immediately

• Secure live notes with partial releases – log-in system

• If approving release, either PT or deputy may sign/stamp/date – No reason to mark the Deed of Trust or Evidence of Debt

– Send releases to recorder, along with payment

• If rejecting release, return all documents and payment – Useful to have a standard form of rejection reasons

– Link rejection form to release, check, and deputy sending it

• Also return all original documents to submitter – Return other documents if have stamped envelope