If you borrowed money to purchase real or personal property, your bank uses your purchased item as collateral in exchange for lending you capital. If you default on your loan, your bank's lien allows it to foreclose on your home or repossess your personal property. If you repay your loan, your bank is required by federal and state laws, if applicable, to release your lien.
Real Property Liens
To purchase residential and commercial real estate, many consumers borrow money from mortgage lenders. In exchange for a loan, a mortgage lender obtains a deed of trust. Real estate buyers sign mortgage notes or promises to pay along with their deeds of trust. When borrowers repay their entire loan amounts, banks are required to release their liens on their property. Furthermore, banks are required to release liens on property when homeowners refinance their loans and their new lenders pay off their existing debts. If your bank fails to release your lien, you will most likely experience difficulties transferring your title during a subsequent sale, since your title will not be marketable or free and clear of existing liens.
Personal Property Liens
Federal laws protect consumers from deceptive lending practices, which include a bank's failure to release a lien on a paid-off debt. The Federal Deposit Insurance Corporation (FDIC) and the Federal Trade Commission (FTC) oversee consumer-banking regulations on credit card lending companies and vehicle dealerships. Additionally, state consumer protection agencies and financial banking agencies provide a state's residents with further consumer protections.
If a bank fails to release your personal or real estate lien, your bank may have transferred your loan to a successor company or assigned your loan to a secondary mortgage institution. Federal law requires mortgage lenders to provide consumers with a written assignment notice within at least 15 days before and after they assign their rights to other banks. If you did not receive a notice of assignment, you can contact the FTC. You can also send your new bank a written inquiry requesting payoff information and your lien release. Your bank has 20 days to respond to your written request and must correct or provide a lien release within 60 days.
Your state may also offer additional consumer protections, although state laws may vary. For example, the State of New Jersey Department of Banking and Insurance has the legal authority to administer the state's consumer protection laws against mortgage lenders. If you live in New Jersey or another state that oversees banks, you can contact the state agency regarding your loan and lien release. You can also contact the FDIC for a substitute lien release by requesting one in writing.
- Federal Deposit Insurance Corporation: Obtaining a Lien Release
- Federal Deposit Insurance Corporation: Lien Release on Real Estate
- State of New Jersey Department of Banking & Insurance: Personal Finance - Frequently Asked Questions
- Federal Trade Commission: Mortgage Servicing -- Making Sure Your Payments Count
- Internal Revenue Service. "Understanding a Federal Tax Lien." Accessed Sept. 29, 2020.
Jill Stimson has worked in various property management positions in Maryland and Delaware. Stimson worked for the top three property management companies in the commercial industry and focuses her career on property building logistics and tenant relationships. She holds a Juris Doctor and a Bachelor of Science in psychology.