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Release/Return of Loan Documents

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Question: 
Is there any requirement to return paid notes and canceled mortgages or other such documents to the borrower when the loan is paid off? Our management is trying to save time and postage.
Answer: 

This is generally a matter of state law. In some cases you may have to return paid notes and collateral documents within a certain period after payoff or after a request is received for them. The State forums in BOL may yield more specific answers, if desired.

Here are two Indiana cites (where the question originated from) you may find of interest. IC 32-28-1-2 and IC 9-17-5-1.

IC 32-28-1-2
Forfeiture; commissioner to release and satisfy lien
Sec. 2. (a) This section applies if:
(1) the mortgagor or another person having the right to demand the release of a mortgage or lien makes a written demand, sent by registered or certified mail with return receipt requested, to the owner, holder, or custodian to release, discharge, and satisfy of record the mortgage, mechanic's lien, judgment, or other lien; and

(2) the owner, holder, or custodian fails, neglects, or refuses to release, discharge, and satisfy of record the mortgage, mechanic's lien, judgment, or other lien as required under section 1 of this chapter not later than fifteen (15) days after the date the owner, holder, or custodian receives the written demand. (b) An owner, holder, or custodian shall forfeit and pay to the mortgagor or other person having the right to demand the release of the mortgage or lien:

(1) a sum not to exceed five hundred dollars ($500) for the failure, neglect, or refusal of the owner, holder, or custodian to:
(A) release;
(B) discharge; and
(C) satisfy of record the mortgage or lien; and
(2) costs and reasonable attorney's fees incurred in enforcing the release, discharge, or satisfaction of record of the mortgage or lien.

(c) If the court finds in favor of a plaintiff who files an action to recover damages under subsection (b), the court shall award the plaintiff the costs of the action and reasonable attorney's fees as a part of the judgment.

(d) The court may appoint a commissioner and direct the commissioner to release and satisfy the mortgage, mechanic's lien, judgment, or other lien. The costs incurred in connection with releasing and satisfying the mortgage, mechanic's lien, judgment, or other lien shall be taxed as a part of the costs of the action. (e) The owner, holder, or custodian, by virtue of having recorded the mortgage, mechanic's lien, judgment, or other lien in Indiana, submits to the jurisdiction of the courts of Indiana as to any action arising under this section.

As added by P.L.2-2002, SEC.13.IC 9-17-5-1

IC 9-17-5-1
Satisfaction or discharge of lien; delivery of certificate of title
Sec. 1. A person having possession of a certificate of title for a motor vehicle, semitrailer, or recreational vehicle because the person has a lien or an encumbrance on the motor vehicle, semitrailer, or recreational vehicle must deliver not more than ten (10) business days after receipt of the payment the satisfaction or discharge of the lien or encumbrance indicated upon the certificate of title to the person who:

(1) is listed on the certificate of title as owner of the motor vehicle, semitrailer, or recreational vehicle; or
(2) is acting as an agent of the owner and who holds power of attorney for the owner of the motor vehicle, semitrailer, or recreational vehicle.
As added by P.L.2-1991, SEC.5. Amended by P.L.268-2003, SEC.16.

In Texas, I would refer certain common requests to the Texas Credit Laws, 342.454:

Section 342.454. RETURN OF INSTRUMENTS TO BORROWER ON REPAYMENT. Within a reasonable time after a loan is repaid in full or an open-end account is terminated according to the terms of the contract, a lender shall cancel and return to a borrower any instrument, including a note, assignment, security agreement, or mortgage that:
(1) secured the loan; and
(2) does not secure another indebtedness of the borrower to the lender.


First published on BankersOnline.com 2/16/04

First published on 02/16/2004

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