When you take out a secured loan such as a mortgage or car loan, your lender places a lien on the collateral. The lender has a claim on the collateral while the lien remains in place, which means you stand to lose your car or home if you default on the loan. When you pay off the debt, the lender must release the lien, but laws on lien release time lines vary from state to state.
When you pay off a mortgage or home loan, your lender must file a notice at the local county courthouse called a satisfaction, cancellation or reconveyance of lien notice. The lender has no legal claim on your property after the clerk of court records this document. In Georgia, lenders have 60 days within which to release real estate liens. Thereafter, the borrower can have the lien released by a judge by providing documentary evidence of the loan payoff. In Virginia, lenders must release liens within 90 days of the payoff and lenders that fail to abide by this time line must pay the borrower $500 in damages.
When you sell your home, the new owners can move in before the satisfaction of lien on your mortgage has been recorded at the county courthouse. Title changes for vehicles work differently, however, because your lien holder must sign the title to release the lien before you can transfer ownership of the vehicle. Therefore, lien releases typically occur on or before the sale date. However, if you pay off a loan but do not sell your car, then your lien holder has to return the vehicle title to you within a certain time limit. In Kansas, when you pay off a lien with cash or wired funds, the lien holder has three days to execute the lien release. This time line increases to 10 days if you pay off your loan with a check or some other form of payment.
Major banks usually have a department that deals with the placement and the release of liens. In many states, such as Virginia, banks can incur penalties for failing to release liens within the time lines prescribed by state law. Therefore, banks typically have standard procedures in place that result in liens being remove within the maximum time lines dictated by state laws. For mortgage liens, banks typically file satisfactions within 10 days of the the payoff, and car liens are usually released even quicker.
When a bank becomes insolvent it ceases to exist and its assets are seized and sold by the Federal Deposit Insurance Corporation. Loans are income-generating assets for banks, and the FDIC may arrange for a new bank or investment firm to buy your loan from your failed bank. If you pay off your loan just before your bank fails or even after your bank fails, you may have to contact the FDIC to obtain a lien release rather than contacting the entity that bought the actual branches of your old bank. It normally takes 14 business days for the FDIC to release the lien.