Real Estate Q&A: Lender’s must release deeds of trust upon full payment

Adam D. Martinez | Chairman of Real Estate Litigation Department

Question:  Several years ago, we purchased a commercial building in Phoenix to open a medical practice. We financed the purchase with a loan and we gave the lender a deed of trust on the property as collateral for repayment of the loan. Recently, we paid off the loan and the lender recorded a release of the deed of trust. However, the lender did not reference the correct deed of trust in its release. I have confirmation that we paid off the loan, but will the lender does not seem to acknowledge the problem? Is it a problem? What do we do?

Answer:  Yes. As you know, a deed of trust is a lien on your property that is recorded in the county records. Each lien is referenced by a recording or fee number. When a loan that is secured by a deed of trust or mortgage is paid, the lender, whether an individual or a bank, is required to deliver or record a release of the deed of trust so that it no longer shows as a lien on the property. However, if a lender records an incorrect release that does not properly reference the deed of trust, then the county records will still show the deed of trust as a lien on the property. This will “cloud” title and you will not be able to transfer clear title when the time comes to sell or transfer the property.

Here, you should contact the lender immediately and inform them of the mistake. You may also be able to enlist the help of your title company to resolve the matter. However, if the lender refuses to correct the mistake, Arizona law provides for a penalty of $1,000 (or more) for a lender that refuses to deliver or record a “sufficient” release of a deed of trust after 30 days’ written notice. If it becomes necessary to obtain a court order to release the lien, Arizona law imposes harsh penalties on the party refusing to release the deed of trust, including attorneys fees and costs.

Adam Martinez is the Chairman of the Real Estate Litigation Department at Rose Law Group pc., and can be reached at amartinez@roselawgroup.com.

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