I. INTRODUCTION
The 2008 Nebraska Legislature adopted LB 386, the “Nebraska Security Instrument Satisfaction Act,” which took effect on July 18, 2008. With the passage of LB 386, Nebraska joins a number of states that have allowed certain “third parties” to file “self-help” satisfactions when a lender fails to timely record a release or satisfaction of mortgage or a deed of reconveyance following full payment of a secured obligation. The new Nebraska law applies only to transactions involving “residential real property” and provides lenders with a series of procedural safeguards that must be complied with prior to a third party becoming authorized to file a “certificate of satisfaction,” to extinguish the lender’s lien.
II. BACKGROUND
Full payment of a mortgage loan typically serves to extinguish or satisfy the lien of the mortgage or trust deed. However, if the lender fails to record evidence of that satisfaction in the public records, the continued presence of the mortgage or trust deed on the records creates practical problems for the owner of the land described in the mortgage or trust deed. In cases in which the owner has contracted to sell the real estate to a third party, the owner must convey “clear title” by removing the existing mortgage or trust deed from the records. Even in cases in which the owner is merely refinancing its existing loan obligation with another lender, the owner must be able to remove the existing mortgage or trust deed from the records to guarantee the new lender its desired lien priority.
With the development of the secondary market for residential mortgages and the corresponding changes in the lending, title insurance, and closing services industries, the payoff, discharge and release of mortgage instruments has become more complicated. Most originating mortgage lenders no longer retain mortgage loans in their portfolios. Instead, most originating lenders transfer mortgage loans on the secondary market to facilitate the eventual securitization of mortgage loans and the issuance of mortgage-backed securities. As a result, it is rare to encounter transactions in which a release or satisfaction of mortgage or deed of reconveyance is provided contemporaneously with the closing of a sale or refinancing of real estate.
The problems described above have led to all fifty states adopting legislation requiring a mortgagee or beneficiary to act promptly to provide title-clearing documentation following full payment of the underlying indebtedness (See, Neb.Rev.Stat. § 76-252 [mortgages] and Neb.Rev.Stat. § 76-1014.01 [trust deeds]). As one might imagine, the “grace period” allowed for the recording of a satisfaction or deed of reconveyance varies greatly from state to state. In addition, the damages that may be recovered by a party for the failure to timely record a satisfaction or deed of reconveyance vary dramatically. A general feeling that the penalties do not provide sufficient economic incentive for lenders to act promptly in releasing their liens has led to action in a number of states to allow for a procedure to authorize “self-help” satisfactions. The new Nebraska law authorizing “self-help” satisfactions is described in greater detail below.
III. GENERAL OVERVIEW
The “Nebraska Security Instrument Satisfaction Act” authorizes a “closing agent,” on behalf of a landowner or purchaser, to execute a “certificate of satisfaction” of a security instrument and record in the real property records of each county in which the security instrument is recorded. These actions may only be taken if a deed of reconveyance or release or satisfaction of the security interest has not been executed by the secured creditor and recorded within sixty days after the date the secured creditor has (a) received full payment or performance of the secured obligation in accordance with a payoff statement furnished by the secured creditor and (b) been notified by the closing agent that the closing agent has the authority to execute and record a certificate of satisfaction of the security interest if the secured creditor does not act in a timely fashion to record a deed of reconveyance or release or satisfaction of the security interest.
IV. DEFINITIONS
The definitions contained within the “Nebraska Security Instrument Satisfaction Act” are integral to an understanding of the manner in which the new law is designed to operate. Only a statutorily defined “closing agent” may execute and record a certificate of satisfaction after complying with the statutory requirements to provide a “payoff statement” and to provide express notice to the secured creditor of the authority of a closing agency to record the “certificate of satisfaction.”
In addition, the authority to execute and record a certificate of satisfaction after complying with the statutory requirements is only applicable to transactions involving “residential real property.” Please note that the application of the Act to only “residential real property” is a function of the character of the real property, not the character of the loan. For example, a lender making a loan it characterizes as “commercial” (e.g., a business line of credit) which is secured with a mortgage on the primary residence of the borrower or an officer/principal of the borrower will be subject to the execution and recording of a certificate of satisfaction by a closing agent complying with the statutory requirements, even though the lender has not characterized the loan in its own records as a “residential” loan.
Following are the significant definitions contained within the “Nebraska Security Instrument Satisfaction Act”:
A. Closing agent means a licensed title insurance agent as defined in Section 44-19,108 designated by a title insurer to execute and file certificates of satisfaction pursuant to a designation of authority or a member in good standing of the Nebraska State Bar Association.
B. Designation of authority means the designation of a title insurance agent by a title insurer, executed and acknowledged as required by law, stating (a) the name of the title insurer, (b) the name of the title insurance agent, (c) that the title insurance agent has the authority to execute and record certificates of satisfaction on behalf of the title insurer, and (d) that the title insurance agent has consented to and accepts the terms of the designation.
C. Notification or notice means (a) depositing the notice in the mail or any commercially reasonable delivery service, properly addressed with postage or cost of delivery provided for; (b) transmitting the notice by facsimile transmission or electronic mail to an address identified by the recipient, but only if the recipient agreed to receive notification in this manner; or (c) otherwise causing the notice to be received within the time it would have been received if notification had been given by mail or commercial delivery service.
D. Payoff amount means the sum necessary to satisfy a secured obligation.
E. Payoff statement means a statement of the amount of unpaid balance of the secured obligation containing (a) the date on which it was prepared and the payoff amount as of that date, including the amount by type of each fee, charge, or other sum included within the payoff amount, (b) the information reasonably necessary to calculate the payoff amount as of the requested payoff date, including the per diem interest, (c) the payment cutoff time, if any, (d) the address or place where payment must be made, and (e) any limitation as to the authorized method of payment.
F. Residential real property means real property located in this state which is used primarily for personal, family, or household purposes and is improved by one to four dwelling units.
G. Secured creditor means a person that holds or is the beneficiary of a security interest or that is authorized both to receive payments on behalf of a person that holds a security interest and to record a satisfaction of the security instrument upon receiving full payment or performance of the secured obligation. The term does not include a trustee under a security instrument.
H. Security interest means an interest in residential real property created by a security instrument.
I. Title insurer means a person authorized and licensed to transact the business of insuring titles to interests in real property in this state.
V. SECURED CREDITOR OBLIGATIONS
Under the Act, a secured creditor, after receiving full payment or performance of the secured obligation, is required to record a deed of reconveyance or a release or satisfaction of a security interest in the real property records of each county in which the security instrument is recorded. Importantly, if a security instrument secures a line of credit or future advances, the secured obligation is deemed to be fully paid or performed only if, in addition to full payment or performance, the secured creditor has received a notification requesting the creditor to terminate the line of credit or containing a statement sufficient to terminate the effectiveness of the provision for future advances as otherwise provided under Neb.Rev.Stat. § 76-238.01 (mortgages/optional future advances) or Neb.Rev.Stat. § 76-1002 (trust deed/optional future advances).
In addition to any other remedy provided by law (see provisions of Neb.Rev.Stat. § 76-252 and Neb.Rev.Stat. § 76-1014.01), a secured creditor who fails to record a deed of reconveyance or release or satisfaction of a security interest within sixty days after receiving full payment or performance of the secured obligation is liable to the landowner or purchaser for actual damages in the amount of any loss caused by the failure, including reasonable attorney’s fees and costs. The damages provisions do not apply in cases in which the secured creditor received full payment or performance prior to July 18, 2008.
The new law provides a “safe harbor” for secured creditors by providing that a secured creditor is not liable for damages if the secured creditor (a) established a reasonable procedure to achieve compliance with its obligations under the act, (b) complied with that procedure in good faith, and (c) was unable to comply with its obligations due to circumstances beyond its control.
VI. CERTIFICATE OF SATISFACTION
Under LB 386, a closing agent is authorized on behalf of a landowner or purchaser, to execute and record a certificate of satisfaction complying with the requirements of the “Nebraska Security Instrument Satisfaction Act” in the real property records of each county in which the security instrument is recorded if a deed of reconveyance or release or satisfaction of the security interest has not been executed and recorded within sixty days after the date (1) the secured creditor has received full payment or performance of the secured obligation in accordance with the payoff statement furnished by the secured creditor and, if applicable, a notification pursuant to Neb.Rev.Stat. § 76-238.1 or Neb.Rev.Stat. § 76-1002 (optional future advances) has been performed, if applicable, and (2) the closing agent has notified the secured creditor in accordance with the provisions of Section 6 of the Act (see description of notification requirements at paragraph VIII below).
A certificate of satisfaction complying with the “Nebraska Security Instrument Satisfaction Act” is evidence of the facts contained in it and must be accepted for recording in the county in which the security instrument is recorded. Upon recording of a certificate of satisfaction, the instrument operates as a satisfaction of the security interest described in the certificate of satisfaction, but does not extinguish the liability of any person liable for payment of the underlying obligation.
VII. CONTENTS OF CERTIFICATE OF SATISFACTION
A certificate of satisfaction shall:
(a) identify the original parties to the security instrument, the landowner, the secured creditor, the record holder of the security instrument, if different from the secured creditor, the recording data for the security instrument, and a legal description of the real property identified in the security instrument;
(b) state that the person executing the certificate of satisfaction is the closing agent and, if the closing agent is a title insurance agent, state the book and page or instrument number of the designation of authority by which the title insurance agent is authorized to file the certificate of satisfaction;
(c) state that the secured creditor provided a payoff statement;
(d) state that there is satisfactory evidence that the secured creditor has received full payment or performance of the sums identified in the payoff statement;
(e) state that there are reasonable grounds to believe that the real property described in the security instrument is residential real property;
(f) state that the secured creditor has failed to execute and record a deed of reconveyance or release or satisfaction of the security interest and that the closing agent has not received a notification that the secured obligation remains unsatisfied;
(g) state that sixty days have elapsed since the secured creditor received full payment or performance of the sums identified in the payoff statement and notification in accordance with Section 6 of this Act (see description of notification requirements at paragraph VIII below) has been given to the secured creditor; and
(h) be executed and acknowledged as required for a conveyance of an interest in real property.
The Act also contains a statutory “Certificate of Satisfaction,” which may be used by a closing agent in complying with the statutory requirements relating to a “certificate of satisfaction.”
VIII. CLOSING AGENTS OBLIGATION TO PROVIDE NOTICE TO SECURED CREDITOR
At least sixty days in advance of recording a certificate of satisfaction, a closing agent must notify the secured creditor that the closing agent has the authority to execute and record a certificate of satisfaction of the security interest. The required notification must include:
(a) the identity and mailing address of the closing agent;
(b) identification of the security instrument for which the recording of a deed of reconveyance or a release or satisfaction is sought, including the names of the original parties to, and the recording data for, the security instrument;
(c) a statement that the closing agent has reasonable grounds to believe that:
(i) the real property described in the security instrument is residential real property;
(ii) the person to which the notification is being given is the secured creditor; and
(iii) the closing agent has made full payment or performance of the secured obligation in accordance with a payoff statement furnished by the secured creditor either prior to or contemporaneous with the giving of the notification;
(d) a statement that the closing agent has the authority, pursuant to a designation of authority if the closing agent is a title insurance agent, to execute and record a certificate of satisfaction of the security interest unless within sixty days after notification:
(i) the secured creditor records a deed of reconveyance or a release or satisfaction of a security interest;
(ii) the closing agent receives from the secured creditor a notification stating that the secured obligation remains unsatisfied; or
(iii) the closing agent receives from the secured creditor a notification stating that the secured creditor has assigned the security instrument and identifying the name and address of the assignee; and
(e) a statement that the secured creditor will be subject to liability under Neb.Rev.Stat. § 76-252, Neb.Rev.Stat. § 76-1014.01 or the “Nebraska Security Instrument Satisfaction Act.”
Please refer to the definition of “notification or notice” at paragraph IV, C, for further clarification regarding the manner in which notice must be provided by a closing agent to a secured creditor in order to satisfy the requirements of these provisions of the Act.
Once again, the Act contains a statutory “Lender/Payoff Satisfaction Notification” which may be used by a closing agent to satisfy the requirements of the statute relating to notification of the secured creditor of the authority of a closing agent to execute and record a “certificate of satisfaction.”
IX. CLOSING AGENT LIABILITY
In addition to any other remedy provided by law, a closing agent who wrongfully or erroneously records a certificate of satisfaction under the Act is liable to the secured creditor for actual damages caused by the recording of the certificate of satisfaction, along with reasonable attorney’s fees and costs. A closing agent may avoid liability for the wrongful or erroneous recording of a certificate of satisfaction of a security instrument if the closing agent complied in good faith with the Act. For purposes of these liability provisions, “good faith” means honesty in fact and the observance of reasonable commercial standards of fair dealing.
The Act makes it clear that a certificate of satisfaction executed and recorded by a title insurance agent pursuant to a “designation of authority” renders the title insurer making such designation liable to a secured creditor for the wrongful or erroneous recording of a certificate of satisfaction by such designee to the same extent that the individual closing agent is liable. The recording of a certificate of satisfaction by a closing agent does not itself extinguish the liability of any person liable for payment of the underlying obligation.
X. CONCLUSION
In conclusion, the provisions of the “Nebraska Security Instrument Satisfaction Act” took effect on July 18, 2008. While the impact of this new law may appear daunting at first blush, the Act is limited in scope (residential real property) and the NBA worked diligently on behalf of secured lenders to ensure that adequate procedural safeguards exist (full payment in accordance with payoff statement provided by the secured creditor and advance notification of the authority of a closing agent to record a certificate of satisfaction) in order to minimize the potential for a certificate of satisfaction to be recorded wrongfully or erroneously by a closing agent.