The information that I am about to share with you has sometimes increased my clients’ bottom lines by hundreds of thousands of dollars per property. These were properties acquired at junior lien foreclosures, association foreclosures, and county lien foreclosures.

They all had one thing in common: there were one or more superior mortgages of record that would have to be paid off before they could close on a sale to their next buyer.

Requesting Mortgage Payoffs Can Be Tricky Business

There is reasonable anxiety that comes with the realization that you’ll have to request a mortgage payoff from a superior mortgage lender to sell your purchase through a title company. This anxiety arises from several factors, which can appear as bumps, hills, or mountains depending on who you have to communicate with along the way.

These factors include (but are not limited to):

1. You are not the borrower on the loan.
2. You do not know the borrower on the loan.
3. You do not have any of the personal information for the borrower (social security number, loan number, date of birth, etc.).
4. The borrower on the loan probably is not on friendly terms with you because you just bought their property at auction (a rather involuntary conveyance of title).
5. You do not know who is administering the loan.
6. You do not know where to request a payoff.

What differentiates these factors as creating bumps, hills, or mountains for investors? Time. I was president of a title company for about eight years and worked as in-house counsel for said title company for nearly a decade.

Why am I sharing this personal anecdote? Being involved in over 6,000 closings, I knew what situations could quickly become deal killers. Investors not having the payoff in advance of the sale was, is, and will forever be a deal killer.

Why Lenders Hesitate with Mortgage Payoffs

Investors mistakenly assume that mortgage lenders will happily provide payoff figures at the request of the title/closing agent without borrower authorization. That assumption is a reasonable assumption. Why would a bank not want to get its money back from someone ready, willing, and able to pay them back?

The Florida legislature understood that purchasing real estate is not limited to traditional arms-length transactions where Homeowner Harry sells to Benny Buyer, and Homeowner Harry has all his loan information readily available, signs a simple release for the title company, and gets a faxed payoff letter within a few days.

Banks do want to get paid back, so why not make it easy? They did, but only for the borrowers.

For non-traditional sales, the legislature created Chapter 701 of the Florida Statutes to make it possible for parties other than the borrower to request a payoff. Lenders are required to send to the property owners, within 14 days of receiving a payoff request, an estoppel letter that states the amount owed on the loan with a per diem figure. The law requires title holders to send proof of ownership with the request, nothing more. Sounds great, right? Sure, if lenders complied with Florida law.

The reality is that lenders are so terrified of being accused of, sued for, or fined for releasing private borrower information that they assume it means they are not allowed provide anything to non-borrowers. See for yourself.

Call a lender and ask for their payoff department. You won’t get as much as a person until you have a loan number. If you happen to have the loan number, you still won’t be given any account information. Faxes get sent into the void. Mailed requests end up discarded. Deals die waiting for the payoff that never comes.

Title companies won’t insure a transaction where there are outstanding liens on the property — that would be a costly and significant risk for any underwriter. Traditional buyers also can’t purchase property stuck in this situation because their own lender will want to have a first position lien on the property as part of the purchase.

The longer sales proceeds are tied up in the closing process, the longer it will be before an investor can put their money back to work.

How to Handle Mortgage Payoffs the Right Way

Does this mean that you will forever be stuck with property that you cannot sell? No. But it means you must take timely action to get payoffs so that your reputation and your business account aren’t in the red.

Following are steps you can take to ensure minimal disruption to your deals when superior loans need to be paid off.

1. As soon as you receive your deed, make a written request for the loan payoff.
2. Send this request via trackable mail/courier services.
3. Wait for the 14-day period to pass for a response.
4. If your request is rejected, do not waste your time arguing with the lender.
5. Contact an experienced real estate attorney to help you get a payoff through litigation.

Having handled payoff requests and payoff litigation for over a decade, I do have encouraging information for investors. Upon receiving a summons for a lawsuit involving payoffs, most lenders respond quickly (within 30 to 45 days of being served) and will provide a payoff or a release of lien. The few that do not respond risk their liens being wiped out within the two-to-four-month-long payoff litigation process.

By taking timely action in requesting payoffs, investors can help ensure that they are ready for a smooth closing. Additionally, they may receive the pleasant surprise of a release of lien from the mortgage lender or a judgment that eradicates the lien of a lender who refused to follow Florida law. In this business, who wouldn’t appreciate this significant boost to their bottom line?

Take charge of your real estate investments, act fast with payoff requests, do not waste your time arguing with the bank’s staff, and, when necessary, bring that lender promptly to court. Time is money, after all.