Our management would like to cut down on over twenty pages of documents that we send to borrowers when a mortgage is paid off. What are we required to send? A copy of the paid note and lien release?

Illinois and federal law require mortgage lenders to provide certain documents to a borrower after paying off the mortgage loan, and additional requirements may stem from secondary market purchaser requirements or your bank’s loan agreements.

Illinois law requires a lender to provide the borrower with a release of the mortgage within one month after the mortgage loan is paid off (although the lender may record the release instead of delivering it to the borrower). Regulation X requires the lender to provide the borrower with a final escrow account statement, in addition to returning unused escrow funds. Also, the OCC’s Mortgage Banking examination procedures require banks to “return the original promissory note to the borrower in a timely manner,” and it is possible that your primary federal regulator (the Federal Reserve) would have a similar expectation.

Finally, you should check your loan agreements to see if they require you to provide additional documents, and if the loan was sold on the secondary market, you should check to see if the loan purchasers impose additional requirements.

For resources related to our guidance, please see:

Mortgage Act, 765 ILCS 905/2 (“Except in the case of a mortgage that is required to be released under the Mortgage Certificate of Release Act, every mortgagee of real property . . . having received full satisfaction and payment of all such sum or sums of money as are really due to him from the mortgagor . . . shall make, execute and deliver to the mortgagor . . . an instrument in writing releasing such mortgage or deed of trust in the nature of a mortgage or shall deliver that release to the recorder or registrar for recording or registering. If the release is delivered to the mortgagor . . . it must have imprinted on its face in bold letters at least ¼ inch in height the following: ‘FOR THE PROTECTION OF THE OWNER, THIS RELEASE SHALL BE FILED WITH THE RECORDER OR THE REGISTRAR OF TITLES IN WHOSE OFFICE THE MORTGAGE OR DEED OF TRUST WAS FILED’. . . .”)

Mortgage Act, 765 ILCS 905/4 (A lender could be liable for a $200 penalty if it does not “within one month after the payment of the debt secured by such mortgage or trust deed, comply with the requirements of Section 2 of this Act . . . .”)

Regulation X, 12 CFR 1024.17(i)(4)(iii) (“If a borrower pays off a federally related mortgage loan during the escrow account computation year, the servicer shall submit a short year statement to the borrower within 60 days after receiving the pay-off funds.”)

Regulation X, 12 CFR 1024.34(b) (“Except as provided in paragraph (b)(2) of this section, within 20 days (excluding legal public holidays, Saturdays, and Sundays) of a borrower’s payment of a mortgage loan in full, a servicer shall return to the borrower any amounts remaining in an escrow account that is within the servicer’s control.”)

OCC Comptroller’s Handbook, Mortgage Banking, printed page 145 (“When a borrower pays off a loan, does the bank file the mortgage release and satisfaction and return the original promissory note to the borrower in a timely manner?”)