Mortgage Bonfire–Is it Wise?

Dear Mr. Miller:  That’s how I have started this column since I first started writing it in the early 80’s.  But this is a situation that I have for myself.  We just paid off our mortgage.  My wife wants to have a mortgage bonfire and several of my bank’s employees have joined with her in that opinion.  In the deep dark recesses of my mind I seem to recall my in-laws burning theirs in the kitchen sink.   I’m guessing I was a lawyer by then and was quite adamant about not burning the original but, rather, a copy.  I’m not sure which they did.  But now that it is my turn, the question becomes, what should my wife and I do.

Payoff Documents
Title Insurance
Satisfaction of Mortgage
Pay off Costs

Payoff Documents:  First, we should get the mortgage (called a Deed of Trust in California) and the promissory note back marked “Paid in full.”  We should also get a satisfaction of mortgage document (called a Reconveyance Deed in California).  More on that 3rd document later.

Title Insurance: When we go to sell the house, the buyer will want title insurance showing a “clean” title (what we call “marketable title”).   And no title insurance company is going to show a clean title if there is a question as to whether that mortgage had been paid off.  The Paid in full endorsed mortgage and promissory note is pretty good evidence but still leaves the title insurance company wondering.  And when they wonder, they don’t insure.  So no sale to the buyer and no money in my pocket.

Satisfaction of Mortgage:  That’s what the 3rd document (the satisfaction document) is for.  The title company looks at the county records almost exclusively.  So if the bank is going to send me that satisfaction document I need to make very sure I don’t burn it but, rather, get it recorded.   Then I can burn it, but I’ll probably, just to be very safe, take a copy of it for my records, place the original with my other originals in a fire resistance facility (safe deposit box, fire resistant file cabinet, etc.) and burn a second copy.  Probably I’ll do the same for the mortgage and promissory note now marked “Paid in full.”

Pay off Costs:  Just so you know, getting the necessary documents to show all is paid off and getting the appropriate document recorded is not free.  In my case it’s costing about $200.  Approximately $180 of that is for “recording.”  I know what recording fees cost as our office records documents frequently in San Diego.  The $180 is probably about $100 higher than it could be.  There is a $75 recorder fee for documents relating to a non-owner occupied residence, ours is owner occupied.  But trying to work that out with a big bank that is handling 100’s if not 1000’s of pay off’s a day is never going to happen–I tried!  The other $20 to $30 or so is taken up by the third party they are probably using to handle the recording.  Interestingly when I called the bank to discuss the fee, the gentleman I spoke with had no depth of understanding as to what really happens; he just said the $180 is for “recording” relayed directly from the recorder.  (To my knowledge, unless you appear in person at the recorder’s office, the recorder only tells you the appropriate fee when you screw up and send the incorrect fee.   So what this gentleman said is clearly inaccurate.)

Bottom line, a symbolic burning is probably the way to go.