Bulletin: NE2008001

Dear Associates:

In response to concerns generated by the widespread and frequent inability to obtain timely releases or deeds of reconveyance in relation to paid off real estate security instruments, the Nebraska Unicameral has passed Legislative Bill 386, and the Governor signed, on March 10, 2008, the Nebraska Security Instrument Satisfaction Act ("the Act"). The Act, which will become effective on July 18, 2008, authorizes real estate closing agents to prepare, execute, and file for record a certificate of satisfaction, which will have the same effect as a release or deed of reconveyance recorded by a paid-off lender ("secured creditor").

This Bulletin will outline the procedures to be followed and describe the documentation required in order to record an effective certificate of satisfaction.

1. Appointment by Insurer. Closing Agent is defined as a licensed title insurance agent designated by an insurer to execute and file certificates of satisfaction pursuant to a "designation of authority." A member in good standing of the Nebraska State Bar Association is also a Closing Agent for purposes of the Act.
   
   A designation of authority may be filed in the office of the Register of Deeds in any county in which a Certificate of Satisfaction may be recorded, and will be indexed as a Miscellaneous instrument under the name of the designated title agent. The designation of authority remains effective until a revocation of the designation is recorded in the county in which filed. The proposed form of Designation of Title Insurance Agent Authority is attached to this Bulletin.
   
   
2. Notification of paid-off Lender. Notification to the paid-off secured creditor of the closing agent’s intent to file a Certificate of Satisfaction under the Act must be made by depositing the notice in the mail or "any commercially reasonable delivery service." The notice may be sent by fax or electronic mail, but only if the recipient has agreed to notification in that manner. The notification must contain certain specific elements, as contained in the proposed form of Lender Payoff/Satisfaction Notification, attached to this Bulletin.

The time at which the notification becomes effective varies: (1) three days following deposit in the mail or commercially reasonable delivery service; (2) one day after sent by overnight delivery; (3) on the date the closing agent or secured creditor submits electronic verification of receipt of notice if sent by fax or e-mail; or (4) on the date received, if sent by any other method permitted by the Act.

It has been suggested that the Notification accompany the payoff check when the check is sent to the paid-off secured creditor. If the payoff is transmitted by other means, the notice will, of course, have to be sent separately. IT IS IMPORTANT TO REMEMBER THAT THE SIXTY DAY NOTICE PERIOD WILL NOT BEGIN TO RUN UNTIL THE SECURED CREDITOR HAS RECEIVED FULL PAYMENT OR PERFORMANCE.

3. Certificate of Satisfaction. The Certificate of Satisfaction cannot be recorded until sixty days have passed since the secured creditor has received notification, unless, within those sixty days, the secured creditor (i) records a deed of reconveyance or a satisfaction/release; (ii) the closing agent is notified by the secured creditor that the secured obligation remains unsatisfied, or (iii) the closing agent receives notification from the secured creditor that the creditor has assigned the security interest and identifying the name and address of the assignee. The Certificate of Satisfaction must contain certain specific elements, as contained in the proposed form of Certificate of Satisfaction, attached to this Bulletin.
   
   
4. Applicable to residential real property only. The Act applies only to residential real property, which is defined as "real property located in this state which is used primarily for personal, family, or household purposes and is improved by one to four dwelling units."
   
   
5. Liability.
   
   

   a. "A closing agent wrongfully or erroneously recording a Certificate of Satisfaction shall be liable to the secured creditor for actual damages caused by the recording of the certificate of satisfaction and reasonable attorney's fees and costs."
   
   b. "A closing agent that records a certificate of satisfaction of a security instrument wrongfully or erroneously is not liable if the closing agent complied in good faith with the act."
   
   c. If the certificate of satisfaction is executed and recorded by an agent pursuant to a designation of authority, the title insurer making the designation shall be liable to the secured creditor to the same extent as provided in Subparagraphs a. and b., immediately preceding.

While this new legislation creates a helpful tool in solving a long-standing problem, it should be used with the same degree of care and professionalism that agents and insurers exercise when issuing commitments and policies. Agents who decide to delegate the duties associated in using the Certificate of Satisfaction are urged to do so with caution and proper regard for the reliability of persons to whom the duties are delegated. Agents should ensure that all personnel are properly trained and informed of the effects of use of the Certificate of Satisfaction as a substitute for a lender-recorded release or deed of reconveyance.

Please contact your local Stewart underwriter if you have any questions concerning this topic.