How a lien should be handled when a home is sold

As featured in The Washington Post

My mother recently passed away, and we discovered she had a “fake” mortgage to my aunt for $1,000 so she would qualify for the homestead exemption in Indiana. My mom’s name is still listed as owner of the property and my aunt may be on a lien, but the county recorder didn’t see anything and the clerk wouldn’t look it up for me.

What kind of form should I have my aunt sign to release this mortgage? She understands there is actually no money involved per se. And when I also talked to the woman at the county clerk’s office, she knew what I was talking about. I’d appreciate any help you can give me. We have to close on the sale of the house in three weeks.

We’re a bit confused. If you are closing on the sale of the home shortly, we assume you have a title company or settlement agent handling the transaction. We are aware that real estate attorneys may not be involved in real estate closings in Indiana, but we assume that the buyer is getting title insurance on the purchase.

The settlement agent or title company should have done a record search on the property and prepared a title report. That document would show whether a lien is recorded against the property in favor of your aunt. If the title report doesn’t show a mortgage to your aunt, it may be that the mortgage was indeed fake and never recorded.

We don’t know for sure what your mother and aunt were up to, but for purposes of selling the home and giving the buyer clean title, the mortgage would be a lien on the property that would need to be removed. If it doesn’t show up, it may not exist. If it doesn’t exist, you might not need to do anything for the closing.

If the lien/mortgage does show up on the title report, you’ll need the information on the report to prepare a release-of-mortgage document. The settlement agent or title company may have someone who can help you prepare one or can refer you to someone to prepare it. This document would effectively say that the lien holder (your aunt) releases her lien to the property on which she had a mortgage.

The release of lien would contain your mother’s information, your aunt’s information, the legal description for the property, the tax parcel identification number, the description of the mortgage along with its date, the date it was recorded and the recording number. You may also have some other information required by local rule or custom, and the document would need to be signed by your aunt and notarized. Once prepared, signed and notarized, the document would get recorded. Upon recording of the release, the lien on the property would be extinguished.

We hope this information helps you in the sale.

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