TO: Dennis I. Belcher, Kevin L. Shepherd, Michael D. Goler, Robin K. Roy,
and J. Elizabeth Cotton
FROM: Patrick E. Mears
DATE: May 18, 2003
RE: Meeting of the NCCUSL Drafting Committee on the Proposed Uniform
Mortgage Satisfaction Act on May 2-5, 2003
Pursuant to the request of Dennis Belcher, I am acting as the ABA Liaison to the Drafting
Committee of the National Conference of Commissioners on Uniform State Laws ("NCCUSL")
concerning the proposed Uniform Mortgage Satisfaction Act. My responsibilities as such are
described in the Instructions for ABA Advisors to Drafting Committees of NCCUSL dated
February 1, 1979, as follows:
"An ABA Advisor is an Association member appointed by his
Section or Committee Chair to represent the interests of the entire
Association on the drafting committee of a particular Uniform Act.
He is invited to all meetings of the drafting committee and is
encouraged to participate actively, although he does not have
voting privileges on policy matters. The ABA Advisor has the
responsibility of reporting to the Chair of his Section, as well as to
other ABA Sections and Committees, on the result of each drafting
committee meeting and on the progress of the Act."
A. History of the Proposed Uniform Act
The proposed Uniform Mortgage Satisfaction Act (the "Proposed Act"), was originally
recommended by the Joint Editorial Board on Real Property Acts ("JEBRPA") as an appropriate
subject of a uniform act and the Executive Committee of the Uniform Laws Conference
approved that recommendation. In a letter dated May 1, 2003, from Carl Breetz of JEBRPA
addressed to Carl Lisman of NCCUSL's Drafting Committee on Title Clearance Methods, the
author explained the primary rationale for the Proposed Act:
"The core of our discussion centered on our recommendation that
the Drafting Committee consider what some might view as a
radical step in satisfying a recorded mortgage. Basically, we
discussed a statutory authorization – perhaps in the form of a
default rule – that would allow the title insurance company for the
'new' buyer/'new' lender (or the closing escrow agent, settlement
agent or buyers' attorney – all open items) to record a binding
release of the seller's 'old' mortgage upon tender to the 'old' lender
of the amount designated in the 'old' lender's payoff letter. As a
consequence, the 'old' mortgage would be legally released without
the need for the 'old' lender to ever physically deliver a release."
Breetz also described a number of collateral issues that should be considered by the Drafting
Committee responsible for the Proposed Act, which included the following:
a. the possibility of permitting old lenders to opt out of the proposed "one
b. the problem of a variance in the designated payoff sum (particularly with
per diem amounts) and the funds actually received by the old lender;
c. calculation errors by the old lender in its original payoff letter;
d. the applicability of this system to non-residential transactions; and
e. whether the statute should mandate that only title insurance companies
could sign the statutory release – with its attendant cries of competitive
disadvantage – or whether other types of settlement agents might be
authorized to do so.
NCCUSL appointed Edward F. Lowry, Jr. as the Chair of the Drafting Committee and R.
Wilson Freyermuth, a law professor at The University of Missouri Law School, as the Reporter.
The other members of the Drafting Committee are the following Commissioners: (i) Lani Liu
Ewart (Hawaii); (ii) Robert L. McCurley, Jr. (Alabama); (iii) Neal Ossen (Connecticut); (iv)
Elwaine F. Pomeroy (Kansas); (v) Regina R. Quinn (Mississippi); and Judith N. Renzulli
(Pennsylvania). Six Observers were also allowed to attend the meetings of the Drafting
B. First Draft of the Proposed Act
Prior to the first meeting of the Drafting Committee, R. Wilson Freyermuth distributed a
first draft of the Proposed Act to all Members, Observers and myself for review and
consideration. This first draft contains eight sections that are titled as follows:
Section 101: Short Title
Section 102: Definitions
Section 103: Secured Creditor's Obligation to Record Satisfaction of
Section 104: Secured Creditor's Liability
Section 105: Nonjudicial Satisfaction
Section 106: Certificate of Satisfaction—Contents
Section 107: Effect of Certificate
Section 108: Liability for Wrongful or Erroneous Certificate
Freyermuth also transmitted with this first draft an extensive summary of all current state laws
governing the process of satisfying real estate mortgages.
C. First Meeting of Drafting Committee in Atlanta on May 2-5, 2003
The Drafting Committee Members, Observers and myself met from May 2nd to May 5th in
Atlanta to discuss the first draft of the Proposed Act and the various issues that it attempts to
address. During these all-day sessions, various officers and staff of NCCUSL would visit with
us and express their opinions concerning this draft. The primary issues that the Committee
focused on during these meetings are identified and summarized as follows:
1. Grace Period for Lender to Issue Satisfaction of Mortgage
In residential mortgage transactions, the funds to pay off the old mortgage are often
delivered to the lender after the date specified in the lender's payoff letter. Consequently, many
mortgagees will not deliver a written satisfaction of the mortgage unless and until they receive
the additional per diem interest and any other unpaid charges due under the mortgage note. This
problem is exacerbated when the lender's payoff letter contains an erroneous payoff calculation,
that is then relied upon by the title insurance company or other settlement agent at the closing.
When this error is discovered later by the lender during posting, the lender often refuses to
deliver the written satisfaction until the proper amount is paid in full. In addition, during times
of high volume mortgage transactions, the lenders are often unable to attend to the payoff and
release process right away, thereby delaying the delivery of a written satisfaction for recordation.
In most states, the applicable statutes create a two-step process for the delivery of the
mortgage satisfaction. The first step is the tender of payment of the mortgage debt, which occurs
at the closing. The second step is the demand by the new mortgagor and/or title insurance
company that the mortgage satisfaction be delivered if the old lender fails to deliver that
document on a prompt basis. Most states grant the old lender a grace period between the time of
this demand and the time that the satisfaction must be delivered, although the length of this grace
period is not uniform throughout the country. For example, in Michigan, the grace period is
seven (7) days whereas in New York, that period is ninety (90) days. A few state statues fail to
specify a grace period, presumably leaving the matter for the courts to decide.
2. Sanctions for Failure to Comply with Demand for Delivery of
Not only are existing statutory grace periods non-uniform but the penalties imposed on
mortgagees that fail to comply timely with a demand for delivery of the written satisfaction are
also all across the spectrum. In some states, these penalties are draconian in nature. For
example, in Arkansas and Pennsylvania, the courts may impose sanctions not to exceed the
amount of the mortgage. In South Carolina, the penalty is the lesser of one-half of the mortgage
indebtedness or $25,000. Some states provide a recurring daily or weekly penalty up to a
predetermined cap, e.g., Connecticut and Louisiana ($200 per week up to $5,000). Other state
statues impose a minor monetary sanction upon noncomplying mortgagees, e.g., Michigan (flat
charge of $500).
The general sense of the Drafting Committee on the foregoing two issues was that a
lender should be given a reasonable grace period (e.g., 60 days) in which to comply with a
demand for delivery of a written satisfaction. If the lender fails to deliver the satisfaction within
the grace period, then the Proposed Act should impose a meaningful monetary sanction on the
lender plus permit the aggrieved person to recover actual damages.
3. Nonjudicial Satisfaction of Mortgages.
Twenty seven states have enacted legislation creating a nonjudicial satisfaction procedure
("NSP") that allows a designated party to record a notice of satisfaction on behalf of the
mortgagee based upon the filing of an affidavit demonstrating that the mortgage debt has been
paid and that the mortgagee has not provided a recordable satisfaction within the statutory grace
period. Some statutes permit only an attorney to prepare and record this document, e.g.,
Vermont and New Hampshire. Other states permit only a title insurer to provide the written
satisfaction in lieu of the defaulting mortgagee. These states include Indiana, South Dakota,
Utah and Wyoming. The latter two states prescribe a statutory form of satisfaction. No states
permit the mortgagor to file such an instrument.
The Drafting Committee discussed whether the Proposed Act should limit the scope of
any NSP incorporated into the model statute. Most state NSPs do not limit the scope of this
procedure—all commercial and residential mortgages are subject thereto. However, some states
apply NSP only to certain types of mortgages, e.g., New York (1-6 family owner-occupied
dwellings) and Ohio (2 or fewer residential units). Other states have adopted "amount" scope
limits, e.g., Minnesota (mortgages of $1.5 million or less) and North Dakota (mortgages of
$500,000 or less).
The Drafting Committee generally favored incorporating NSP into the Proposed Act
along the lines of the Utah and Wyoming model. However, there was some sentiment for
permitting the mortgagor to record a written satisfaction. Revised Article 9 permits a debtor to
record a termination statement in lieu of the lender. This issue may very well be the subject of a
floor debate at NCCUSL's Annual Meeting in August.
D. What Happens Next?
At the conclusion of these meetings, the Reporter announced that he would take into
account the various comments made by the participants, prepare a second draft of the Proposed
Act and distribute the second draft for review and comment. This second draft (as it may be
further revised) will then be submitted to NCCUSL for its consideration and debate at its 2003
Annual Meeting in Washington, D.C. It is anticipated that additional meetings of the Drafting
Committee will be held after NCCUSL's Annual Meeting to fine tune the language of the
Please feel free to contact me if you have any questions or comments concerning the
subject matter of this memorandum. My telephone number is (616) 336-1056 and my email
address is firstname.lastname@example.org.
Patrick E. Mears