Watch out for a lingering lien when applying for a home loan!

There are many things that one has to watch out for when purchasing or refinancing a home. One of the often-overlooked items is a lien from a previous loan that has not been removed by the lending company. When a loan is paid off, the lender or mortgage company is supposed to remove the lien and show that the loan has been repaid. This process, which includes a fee that was paid by the homeowner in the original loan, is called reconveyance. Sometimes, this reconveyance does not happen, and that can have serious repercussions for those trying to refinance or obtain a home equity loan.

A lien may not be removed for various reasons - perhaps it was a simple oversight on the part of the lender. During times of heavy refinancing, when interest rates are low, lenders are often overworked and can easily forget to handle routine items like a reconveyance. Sometimes, a loan company is sold to another company, and in the transition, small paperwork items get lost in the shuffle. No matter what the reason, a “lingering lien” can be a serious problem that can haunt a homeowner who is trying to refinance their home.

Should a homeowner discover that a lien is still in place, a refinancing can be held up until the matter has been resolved. This can cause some problems if interest rates are volatile and the homeowner is eager to lock in a favorable interest rate, or if the homeowner is in a hurry to use the loan proceeds for debt consolidation or some other time-sensitive purpose.

Any prospective borrower may be able to avoid this problem by doing the following:

• Obtain a copy of your credit report. Examine it carefully for errors, particularly errors that show that a paid-off loan may still be active. Should this be the case, contact the lender for that loan immediately. You should check your credit report regularly, regardless of whether you are applying for a loan or not. It is easier to correct errors in your credit report when you aren’t in the process of trying to borrow money.
• Always keep paperwork from real estate transactions, even fully paid ones. It may be necessary to provide this paperwork to a lender in order to demonstrate that the loan has been repaid. Tax advisors often recommend saving all tax-related paperwork for seven years, but it’s a good idea to keep real estate documents indefinitely.
• If public records indicate that a loan is still active, but the lender says that the debt has been repaid, ask the lender to send the appropriate documents regarding your reconveyance to the appropriate authority. You may have to stay on top of this with a few phone calls, but it will be time well spent.

The issue of a lingering lien can easily be avoided by keeping good records and checking your

>credit report regularly. The last thing you want is to be haunted by a loan that has long been paid off when you are trying to obtain a loan.