Once a borrower has completely paid off a bank loan that was secured with property, the bank is required to remove its claim against the property through a lien release. This document, which states that debt has been paid in full, is filed with the proper government agency to establish that the borrower is now the sole owner of the property. Borrowers should make sure they receive a lien release and that it’s filed in a timely manner since the existence of a lien can hold up the sale of the property.
A lien is a legal claim made by a bank against a borrower’s home, vehicle or other property to ensure that the borrower’s debt is repaid. Car loans and home mortgages are examples of loans that include property liens. A lien is recorded with the appropriate government agency, such as the county recorder for real estate or the motor vehicle department for vehicles. The lien secures the lender’s claim on the property. After a lien has been placed, the property is referred to as encumbered and the lender becomes the lien holder.
Any existing liens against a piece of property can be determined by doing a title search. A lender that is looking into financing a home or vehicle will run a title search to make sure the property is unencumbered. When a loan has been fully repaid, a lien release document is provided to the borrower by the lien holder. It should be filed with the same government agency where the original lien was filed. This officially ends the lender’s legal interest in the property.
Each U.S. state has its own statutes related to the amount of time a bank has to issue a lien release after a loan is repaid. The typical amount of time is 30 to 60 days. Some banks will send the lien release directly to the department of motor vehicles or the county recorder’s office on behalf of the borrower, while others send the release to the borrower who then must file it.
If you have repaid a mortgage or vehicle loan and don’t receive a lien release, don’t assume that your title is in the clear. After 30 days have passed, contact the lending bank directly and find out how to request a release of lien document. Be prepared to show that you have paid the debt in full. Although it may seem like a hassle to request the release when the bank should have taken care of it, trying to obtain one at a later date can be much more complicated, especially if your bank closes or merges with another financial institution at some time in the future.
When a car or truck is purchased with a bank loan, the bank becomes the holder of both the lien and vehicle title. Until the loan is paid in full, the bank is essentially the vehicle’s legal owner. This is done to prevent the borrower from stopping loan payments before the loan is paid off. It also prevents the borrower from selling the car without contacting the lender. The title is held by the lender until the loan is paid in full.
The loan repayment process for a car is similar throughout the country, though some states may use a slightly different process. Once the last payment on a car loan has been made, there may be a delay before the lien is released while the lien holder waits for the final payment to clear. Many banks will notify the local motor vehicle department after confirming that all payments have been made. If not, it’s up to the borrower to contact the motor vehicle department and make sure the lien is released.
A new title for the vehicle is typically issued a few weeks after the lien is released. The owner’s name will be on the new title and the bank’s name will be removed. This is a clear title that can be used when selling the car. Borrowers who have questions or concerns about their title being transferred correctly should contact their local department of motor vehicles.
The process for a lien release associated with a home loan usually starts with the borrower requesting a final payoff statement from the bank. This statement should include the outstanding loan balance, interest and any fees associated with the release of the lien and the change of title. Most lenders charge a $25 to $50 fee to cover the filing of the lien release. Borrowers should start this process one or two payment periods before the final payment to avoid delays in closing out their loan.
Most lenders will deliver a final payoff statement within seven days of a borrower requesting it, along with an expected payoff date. Remaining interest on the loan is calculated based on this date. Once the amount in the statement has been paid by the borrower, the next steps in the payoff process will depend on the state, county and type of loan. Typically, the borrower will receive several documents, possibly including the canceled promissory note and a canceled mortgage or deed of trust.
At around the same time that the bank mails the final documents to the borrower, it should also notify the county recorder’s office to release the lien on the property. Borrowers should confirm that the paid-off loan is properly recorded. If the lender does not take care of this part of the transaction, it may be up to the borrower to report the mortgage payoff and obtain the lien release.
If you paid back a secured loan from a bank that failed or closed without providing a lien release, you have a few options for obtaining one. If the bank was acquired by another bank within the past two years, the purchasing bank should be able to provide a lien release. Contact the new bank’s mortgage department for additional information.
Otherwise, it may be possible to obtain a lien release from the Federal Deposit Insurance Corporation (FDIC), an independent financial agency established by the U.S. Congress. Visit fdic.gov for more information about requesting a lien release from a closed bank. The agency can help with liens on homes and land as well as cars, trucks and boats. Unfortunately, the FDIC cannot help with lien releases for loans issued by credit unions or mortgage and finance companies.
In some states, you can create your own lien release document if your lender does not provide one. After satisfying your debt, obtain a Release of Lien form from the agency where the lien is filed; many agencies provide the form online. After filling out the form, provide proof that the loan has been paid and have the form signed by the lien holder. In some states, the lien may need to be notarized. The completed form can then be filed with the county recorder or other appropriate agency. Rather than dealing with the intricacies of this process, many borrowers seek the advice of a real estate lawyer to help obtain a release of lien when their lender fails to provide it.
Catie Watson spent three decades in the corporate world before becoming a freelance writer. She has an English degree from UC Berkeley and specializes in topics related to personal finance, careers and business.
