Early mortgage payoff protocol

DEAR BENNY: I am going to pay off my 30-year mortgage at the end of this year, which is 10 years early. When I contacted the mortgage company to ask for a payoff amount, the representative said there would be some fees included. Someone else told me that there should be no fees and to refuse to pay them. What should I expect when paying off my mortgage? Should I also get the original deed? --Jay

DEAR JAY: Permit me to explain the mortgage process. When you first obtained your mortgage (also called a deed of trust) 20 years ago, among a large number of papers involved, you signed a promissory note and a mortgage (or deed of trust). The note is the IOU -- "I promise to pay the lender 'X' dollars, at 'Y' interest rate, due in full in 30 years."

Your lender wanted security, just in case you were unable to make the necessary payments. So you also signed a document entitled a deed of trust, which was recorded among the land records in your county or state. Some states still use mortgages, but the majority of loans are secured by deeds of trust.

The deed of trust basically states that you deed the property in trust to a trustee appointed by your lender. If you are in default -- and depending on the foreclosure laws in your state -- the trustees have the right to sell your property at a foreclosure sale.

You are not in default, and now want to pay off your mortgage. Since it was recorded on the land records, it must now be released. Typically, the appropriate recorder of deeds will charge a fee for recording -- usually nominal, ranging from $35 to $100. And someone -- usually the lender when you are not selling the property -- has to prepare the appropriate release document.

Lenders typically charge a small fee to prepare and send you the payoff amount. So, the answer to your question is that there will be some fees associated with the payoff of your loan. Ask the lender to provide you with the specific charges.

But more importantly, the loan is not paid off in full until the lender actually receives the money. If you are told that you will owe "X" amount on a certain date, your check must be there on that date or additional interest will accrue. Lenders will provide you with a "per diem" amount -- which means that you have to add the daily interest charge to make sure you are really paying off your loan.

If you are dealing with a legitimate lender, I recommend sending them three to five days' additional interest -- just to make sure that you have paid off the loan. The lender will calculate what is actually owed and should send you back any overage.

You asked about getting the deed back. You should have received that when you first bought the house. You want the lender to send you (1) the original promissory note, marked "paid and canceled," and (2) the original deed of trust (or mortgage document), again marked "paid and canceled."

And don't forget to advise your insurance company and your real estate taxing authority that you no longer have a mortgage and that all future communication should go directly to you.

DEAR BENNY: How long do I have to own a house before I have to start paying capital gains on it? --Cindy ...CONTINUED

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