Some title companies in our area have begun filing “certificates of release” on our mortgages when our customers refinance or sell their homes. Our bank has always complied with the Illinois Mortgage Act and filed a release of our lien with the county recorder within thirty days after a mortgage has been paid off. Is there anything we can do to prevent this practice?

The short answer is yes. Include a statement similar to the following in big, bold letters in all of your payoff letters:

“Notice to All Persons: _______ (“Lender”) objects to the filing of a “Certificate of Release” pursuant to the Mortgage Certificate of Release Act in relation to any and all mortgage liens held by Lender on the Borrower’s interest in the property given to secure this loan.”

Now for the explanation. You may recall from our reporting over the last two years that Illinois has enacted a new law called the “Mortgage Certificate of Release Act.” This law was initiated by the title insurance industry in response to the problem of liens remaining on the records of county recorders after loans were paid off. There are a number of reasons this could happen. For one thing, after a mortgage is paid off many lenders simply send a release to the mortgagor with a statement that the mortgagor should file the release with the county recorder (this practice is expressly permitted by the Illinois Mortgage Act). Another factor is that many loans are sold off to the secondary market and then resold, and often the servicing rights are sold separately, and the last purchaser who receives satisfaction when the loan is paid off is far removed from Illinois and does not communicate with the servicer as to who will do what, and — well you get the picture.

It’s important to know that this issue is being debated across the country, and the National Conference of Commissioners on Uniform State Laws (the folks who brought you the Uniform Commercial Code) will be publishing its final draft of a proposed uniform state law on the subject later this summer. Without doubt, we will be revisiting the Illinois law when the new legislature returns next year. Meanwhile, the current Illinois law requires a title company that is filing a “certificate of release” to state in the certificate — under oath — that it knows of no objection to that filing by the mortgagee. Consequently, if your bank includes a statement similar to the one suggested above in its payoff letter, we do not believe that a title company may file a certificate of release with the county recorder, and if it does anyway, we do not believe that it should be recognized by the courts.