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Realty Q&A: Heres what happens when you pay off mortgage (Market Watch)

Can you write an article on what takes place when a mortgage loan is paid off?

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Published: Sept 25, 2009 8:01 a.m

ET Share .st0{fill:#FFFFFF;} .st1{fill:#E12828;} .st2{fill:#FAEAEA;enable-background:new ;} .st3{fill:#FAD4D4;enable-background:new ;} Here's what should happen when you pay off your mortgage window.videoDomain = ''; By LewSichelman WASHINGTON (MarketWatch) -- Question: Can you write an article on what takes place when a mortgage loan is paid off? A lot of baby boomers may be interested

I had a $5,000 balance when my loan was transferred and it was paid off in June

All I received from the mortgage company was a letter saying that the loan was paid off and that the letter served as proof of that fact

Shouldn't a deed or title be exchanged and should it have to be recorded with the county in which you reside? Answer: Here's what should happen, and I stress the word "should" because who knows what has been lost in the transfer of the mortgage from one lender to another -- and perhaps even another lender you don't know about: When a loan is paid in full, the lender should return your original mortgage and note, along with a document known as a "Satisfaction of Mortgage," or as the lawyers like to call it, the "satisfaction piece." This document is much like the notice auto dealers stamp on car titles when your car loan is paid off, except that whereas the lender's rubber-stamp statement is proof enough for the DMV that the lien has been satisfied, a mortgage satisfaction is a legal document that should be filed at the county courthouse

Otherwise, title companies will be unable to verify that you own your place free-and-clear

And if they can't do that, they won't issue a clear title when you try to sell the joint

That may seem like the buyer's problem, but it's yours too

In many cases, subsequent lenders won't close if there is a quirk in the title

Consequently, your sale can be held up for as long as it takes to clear the air, and that can take quite a while

In some cases, according to title attorneys, sellers have actually had to sue their lenders to prove that they've paid in full

And every once in a while the original lender is no longer in business so the verification is doubly complicated

The next step is to make sure the satisfaction has been filed with the recorder's office

Some lenders file the notice on behalf of their borrowers, but others leave that up to you

If yours is in the do-it-yourself category, hand-carry the satisfaction notice to the recorder's office -- in some jurisdictions, that's the registrar of deeds -- so it can be recorded for posterity

And whether the lender presents the satisfaction or you do, make sure to get back the original document with the filing date and time stamped and noted on it

I don't know what happened along the way in your case, but the bottom line is to be absolutely sure the recorder's office in your town has it on file that there is no longer a mortgage lien against your property

Q: I am wondering if the $8,000 tax credit applies for the purchase of a two-to-four unit dwelling, where a buyer (who meets all of the qualifying criteria) moves in one of the units as his primary residence and rents the others

A: Yes, you may qualify for the credit for the dwelling unit that you use as your principal residence

But determining the exact amount is a little tricky because you must allocate the purchase price between all the units

You cannot use the entire purchase price of the building to determine the amount of the credit

Since the credit is 10% of the purchase price, up to $8,000, the 10% applies to the prorated share of your residence

For example, if a first-time buyer lives in one unit in a four-unit building which cost $400,000, then the cost of the owner's unit for purposes of the tax credit is $100,000

Ten percent of that is $10,000, which is above the maximum, so the claim is only an $8,000 credit

If the building cost just $200,000, though, the cost of one unit would be considered to be $50,000, and the credit would be only $5,000

Feedback John Zolidis of the Buckingham Research Group in New York City thinks I created confusion regarding the first-time home buyer tax credit -- as opposed to clearing it up -- because I failed to mention that there is an income limit on claiming the write-off

Perhaps so, but I cannot repeat the same information over and over and over again

Still, since the limit is important, here's a brief explanation: Home buyers who file as single or head-of-household taxpayers can claim the full $8,000 credit if their modified adjusted gross income (MAGI) is less than $75,000

For married couples filing a joint return, the income limit doubles to $150,000

Single or head-of-household taxpayers who earn between $75,000 and $95,000 are eligible to receive a partial first-time home buyer tax credit

Married couples who earn between $150,000 and $170,000 are eligible to receive a partial first-time home buyer tax credit

The credit is not available for single taxpayers whose MAGI is greater than $95,000 and married couples with a MAGI that exceeds $170,000

For a more detailed discussion, I suggest readers go to and scroll through the frequently asked questions section

Nationally syndicated columnist Lew Sichelman has been covering the housing market for more than 35 years

Because of the volume of mail he receives, he cannot answer individual questions, nor can all questions be answered in this space

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