Promissory note payoff issue with title company

11 Replies

We are newbies to private lending.  We gave an 'interest-only' promissory note to our borrower a few years ago. Now our borrower has refinanced through a mortgage company.  The title company asked us for a payoff demand. They requested that we use their payoff statement since we held the note as trustees of our living trust. (Not sure why that matters)  The form stated:

"Total amount to pay off contract in full" $____   We filled in the principal due.

"Payoff amount good through"______

"Daily interest per diem" $________

plus wire instructions and our notarized signatures.

On the 17th of the month, they wired money to our account - in the amount of only the principal due, MINUS one day's interest!   After some back & forth with title, they are refunding the one day's interest,

However I told them the interest for this month was still due up to date of closing. ( I'm sorry we didn't use a standard form that states exactly dates of interest due from XXX to XXX.)

They can't explain how they figured the payment, but claim that's all we're entitled to.

Also, they say we must file the reconveyance ourselves with the county. 

We intend to talk with our borrower & explain the situation & hope she'll pay the interest still due. Would this be OK?

Any pros on this board care to comment on this situation?

Thanks in advance for any help.

Title/escrow can rely by law on your signed statement as to the 'Total amount to pay off contract in full', you should have included interest+plus other charges, not just principal.  If you say payoff is X and later after payoff say it is Y, what are they supposed to do, other than tell you to take a hike.

I would as you suggest talk to borrower, explain the mistake and hopefully they will pay.

Unfortunately they relied upon a written statement from you, which turned out to be wrong. Hard to fault them for that.

If borrower is made aware of the situation they should make you whole... and perhaps title will generate a revised settlement statement which shows the actual interest paid.

Thanks for the replies.  

I realize on a standard demand form it would have been more precise re: interest from x date to closing. 

Live & learn....

The settlement statement - on the line "Mortgage Payoff to 'our names' it listed the amount wired to us - which for some odd reason was the total amount MINUS one day interest.   Isn't that odd?

Originally posted by @Lois S. :

Thanks for the replies.  

I realize on a standard demand form it would have been more precise re: interest from x date to closing. 

Live & learn....

The settlement statement - on the line "Mortgage Payoff to 'our names' it listed the amount wired to us - which for some odd reason was the total amount MINUS one day interest.   Isn't that odd?

 In a lot of finance applications 30 day months and 360 day years are used, regardless of the actual numbers of days in a year or month. 

Evil finance people aren't the only ones: If a tenant moves in/out on the 15th, many landlords will call that half a month no matter if it's Feb (28 day month) or March (31 day month).

Chris Mason, Lender in CA (#1220177) and California (#1220177)
415-846-9211

@Chris - I think I understand what you say, but why would they subtract rather than add 1 day of interest?

Anyway, we'll talk to the borrower & see what she says. 

@Lois S. Sounds like this deal closed a day earlier than the good-thru date on the payoff statement you provided. So for example if you provided a payoff good through 3/31, you included a per diem of $20, and the deal actually closed on 3/30, title was correct in subtracting $20 from the payoff.

Thanks Tom.   The interest was paid in arrears, so March interest had not yet been received by us. (would have been due on April 1)

The title co didn't ask for our note, BTW.  

 I guess my mistake was not making it clearer on their payoff form.

And they closed on 3-17

I'm totally confused with the form title requested you use, @Lois S.

It asks for the "Total amount to pay off the contract in full." How are you to know the total amount due if you don't know what day they will be paying you back? Where does it say that this is the principal? Plus if they have the total, why do they ask for the "Daily interest per diem? " In my view, it would only be by sheer coincidence that you are paid back properly using this document.

The good news is you still have the Sub and Recon. Yes? If so, you are still in complete control. (Even if "No," the note must still be satisfied. It's just unsecured.).

Your note determines the correct payoff calculation, not a form provided to you by title. Unless your note says otherwise, interest is calculated from the day you wire to the day you receive the payoff, inclusive. You don't care that or when the property recorded. No matter. Regardless of who's at fault, it sounds like you are still owed money.

For all the reasons you're experiencing, we never use these forms from title. We email a letter instead, and include the following lines, as appropriate.

Assuming a March 31, 2018 payoff date, here is the payoff demand for 210 N. Rodeo Dr.

Principal……………….……………..……..$295,000.00

Points……………………………………….…$6,900.00

Interest through February 2018 …….….....$48,853.28

March 2018 interest @ $107.17/day.……....$3,215.10 (please adjust as necessary)

Total Due..………………..……………......$353,968.38 (please adjust as necessary)

Please adjust the March interest and total due using the actual payoff date.

I could go on, but you get the point. (Note: I had to put the dots in for BP to format this correctly.). As Tom, above,  suggests, you might try again. Always copy your borrower.

Also, I've never had a title company tell me to record a sub & recon myself. Plus, what do they expect you to do with the note?  How lazy.

Some title companies are not used to dealing with private lenders and can be dismissive.  Always be polite, of course, but don't be afraid to stand your ground.

Good luck, Lois.

@Jeff S  - Thank you!  "How are you to know the total amount due if you don't know what day they will be paying you back?"  Exactly!!

Your letter is great. I'll be saving it for the next time!

I did contact the borrower, & she volunteered to just send me the interest due.

I will send her a Release of Promissory Note.

The title co. did not provide any sub & recon document for us to sign.

Their legal dept. copied & pasted some Calif regulations into an email & said they were done.

A realtor friend has one I can use, but honestly, I'm going to get some help to fill it out.

I looked up the title co on Yelp & see they have horrible reviews from what appear to be legitimate, experienced people.  

@Lois S.

Good to hear borrower is going to pay the interest :)

There is no Release of Promissory Note.  A recorded Substitution of Trustee and Reconveyance (Sub & Recon) terminates the note and deed of trust.

Odd that title said they were done.  I don't think I have ever had to prepare a sub & recon myself.  I would call them and ask, maybe title expected escrow to prepare one.  I've done quite a few loans and escrow has prepared the sub & recon every time, they say they can't close without one.

Update: After an email convo with the title co, they prepared & sent us a Sub & Recon doc & also provided a notary.  

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