How to prove a property is free and clear?

Question

I have a property I am getting financing on, and I just got the loan commitment but with a few contingencies.

One of the contingencies is for me to submit proof that I own two other income producing properties free and clear.

Now one of those properties I had a mortgage on, and paid it off early.  So for that one I can submit a satisfaction of mortgage letter and that should be sufficient.

Another property I paid cash on, never had a mortgage, and I am scratching my head as to how I can prove it's free and clear.  I don't see anything I have that indicates it as such.  Now the settlement statement does say "CASH FROM BORROWER" and "CASH TO SELLER" so I am wondering if that's good enough, or is there some other document I am not thinking of.

Also curious is why they singled out two properties and didn't ask me for proof on other owned properties, did they do a search and missed some things?  Or they are not done?  But if they issued a loan commitment letter already with those specific contingencies, then I guess they are done.  Should I even bother to fully disclose the rest of my assets or just leave it be?

Daniel Harrison · Answer

I would also disclose all properties now.  Lenders know that free and clear properties can be difficult to pick up with just a credit report.  They will pull a report called MERS at the beginning of the process and again at the end to make sure you haven't purchased another property simultaneously.  Better to do aged all the conditions cleared now that the day of closing.

J. Martin · Answer

Escrow is going to be a different company.. Sounds funny, but the bank usually isn't doing much except passing payments on to investors, depending on the situation..

Don't harass them too much. Just ask what specific documents they'd like to see, pull the docs, and get your cash :)

Daniel Harrison · Answer

As a mortgage banker for a new home construction lender, we will take a copy of your homeowners insurance declaration page.  It would show that you have no mortgagee and should suffice.  Or as stated above you can order an O. and E., but those can run you up to $150 or more depending on the location of the property.  good luck!

Sam Leon · Answer

@J Martin

I am surprised as well that they are not doing their own due diligence.  Seems to me they should be paying someone to check this out instead of asking me.

I don't know if I should ask them "hey how come you didn't ask me about these other properties?"

Funny thing is I did a cash out refi with them last year on another property.

and they are asking me to submit proof of current insurance on that property.  I said, hey, look, you are paying the insurance out of an escrow account *YOU* forced me to maintain.  Why are you asking me?  LMAO.

J. Martin · Answer

@Sam Leon ,

ASK YOUR TITLE COMPANY FOR A PRELIMINARY TITLE ON THE PROPERTY YOU NEED PROOF THAT IT'S FREE AND CLEAR.

This, coupled with the HUD1 from the purchase, shows that you didn't use a loan to purchase it, and there is no existing lien from a mortgage on the property. I'm surprised they didn't just ask you for the address, and pull the prelim title themselves, to get it independently.

The title search performed in the prelim title discovers whether or not there are any liens against the title, which would typically be placed by a lender on the property. They also may have you sign a document stating that there are no liens that are not recorded. If there are not, just sign it.

Bingo. Bango.

Scot Howat · Answer

Public records

HUD1 from the purchase

Hazard insurance policy with the mortgagee clause blank, or additional insured with your name

If its a rental property, the schedule E would have no mortgage interest paid

Title can prove it too

J. Martin · Answer

In theory, you could do a cash-out refi after having purchased the property in cash, and therefore would not have a free and clear property. So that's why I was thinking the HUD1 to show there was no loan at purchase, then the prelim title to show there is no loan today. Then they'll usually have you sign something at close of escrow that state you have had no significant changes in your financial situation since your application, or something to that effect..

But whatever documentation they want to accept, is up to them basically. Just ask them directly, or those documents should do a good job.. They're all easy to get..

Dawn Anastasi · Answer

I have had to show a HUD to prove that I purchased the property in cash.  But that's all I've ever had to do.

How to prove a property is free and clear?

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