This memorandum summarizes Wisconsin’s new mortgage satisfaction law which became effective on December 14, 2013. The new law (2013 Wisconsin Act 66) will likely impact a lender’s procedures in recording mortgage satisfactions, and in responding to loan payoff statement requests received from borrowers or other "entitled persons."

Requests for Payoff Statements

The legislation recently enacted introduced a new law (Wis. Stats.§708.15(3)) to Wisconsin regarding the request to receive loan payoff statements. Under this new law, a person liable for payment or performance of an obligation secured by a mortgage on real property, an owner of real property encumbered by a mortgage, or a person responsible for the preparation of a settlement statement for the conveyance of real property (each, an "Entitled Person") may request a payoff statement from the secured creditor for a payoff date not more than thirty days after written notification is given. A secured creditor under the new law is required to, upon request from an Entitled Person, provide one payoff statement free of charge during any two-month period. The secured creditor may charge a fee of $25.00 for any additional payoff statements requested during any such two-month period.

The request from the Entitled Person must be in writing and must state the Entitled Person’s name or the name of the person making the request with a statement that such person is the authorized agent of the Entitled Person, state whether the payoff statement should go to the Entitled Person or the authorized agent, state the address (or email) where the payoff statement should be sent, and state sufficient identifying information regarding the loan and the encumbered property. Such notification may request that the secured creditor send the payoff statement to an authorized agent of the Entitled Person. The bank should make sure that the request satisfies all of the requirements listed above, because the creditor may not claim once the payoff statement is sent to the Entitled Person or authorized agent that such requirements were not met.

With respect to notifications and notices, as they apply to payoff statement requests and mortgage satisfactions, a person may deliver a notification by any commercially reasonable delivery service, including USPS, by fax, email or other electronic transmission, or by any other method which will cause the notification to be received at the address given for such notifications within the same timeframe as the commercially reasonable delivery service. The notification will be considered effective under Wisconsin law: (i) one day after it is deposited with a courier for overnight delivery; (ii) three days after it is deposited with a commercially reasonable delivery service for anything other than overnight delivery; (iii) the day it is sent if by electronic transmission; or (iv) the day it is received by the recipient if by any other method of delivery.

Timing and Substantive Requirements for Payoff Statements and Mortgage Satisfactions

Assuming that the secured creditor has not assigned its interest in the obligation to another party, the bank must issue the payoff statement within seven business days of the notification for a mortgage on residential property, or within a "reasonable longer" amount of time after the effective date of the notification for a mortgage on commercial property. If the bank has assigned its interest in the obligation, then the bank must notify the named recipient of the payoff statement that the bank has assigned the mortgage and provide such assignee’s contact information within seven business days after the effective date of the payoff statement request.

There were no previous substantive requirements in Wisconsin law relating to payoff statements in real estate secured loans. Now, a payoff statement sent by a secured creditor in response to a request must contain all of the following: (i) the date the payoff statement is prepared; (ii) the payoff amount as of the preparation date; (iii) if requested, the amounts of other fees, charges or other sums included in the payoff amount; (iv) the information necessary to calculate the payoff amount as of the requested payoff date, including any per diem interest amount; (v) the payment cutoff time, if any; (vi) the address where payment, including payment by electronic transmission, should be made; and (vii) any limitation as to authorized method of payment.

The payoff statement may not state that the payoff amount is subject to change before the payoff date. Any failure to timely deliver a payoff statement which meets all of the requirements will result in liability to the secured creditor in the amount of actual damages caused by the failure, plus $500.00. If a secured creditor does not pay such damages within thirty days of receiving a demand notice, then the secured creditor may also be liable for reasonable attorneys’ fees and costs of the Entitled Person.

To protect innocent parties relying on the stated payoff amount, Wisconsin also has enacted a new law regarding understated payoff amounts. If the payoff amount was understated, the secured creditor may not use that as a defense against any person who reasonably and detrimentally relies on the stated payoff amount unless the secured creditor sends a corrected payoff statement to the named recipient with enough time to allow for a reasonable opportunity to act upon the corrected payoff statement.

For example, if a payoff statement identifies an understated payoff amount to be paid out of the proceeds of a sale of real property, the secured creditor fails to timely deliver a corrected payoff statement, and the buyer reasonably relies on such payoff statement and the creditor receives a payment of the understated amount, the secured creditor must still record a satisfaction of the mortgage and may attempt to recover the balance of the loan or obligations from the borrower.

Please note that the creditor’s rights to recover the remaining balance from such borrower are generally unaffected, but collection of this sum would be on an unsecured basis. This new law magnifies the importance for a bank to accurately calculate and state the loan payoff amount whenever a payoff request is received.

Within thirty days after the secured creditor receives full payment or performance of the loan obligations, or payment of the amount as described in the creditor’s payoff statement, the creditor must record a satisfaction of mortgage with the applicable Register of Deeds’ office. If the mortgage secures a line of credit, such as a home equity line of credit (HELOC), the Entitled Person must also request that the secured creditor terminate such line of credit or definitively state that any future advances will not be secured by the mortgage before the secured creditor is obligated to record a satisfaction of mortgage.

Failure to record a satisfaction of mortgage within such thirty-day period will result in damages to the landowner of $500.00, plus any actual costs caused by the failure and reasonable attorneys’ fees and court costs. The substantive requirements for mortgage satisfactions (Wis. Stats.§706.05(8)) have not changed.

Please note that a secured creditor will not be liable under the new law for failure to provide a payoff statement or record a mortgage satisfaction if the creditor establishes a reasonable procedure to comply with the law, complies with the procedure in good faith, and was unable to comply with its obligations under the law due to circumstances beyond its control.

Affidavits of Satisfaction by Title Insurance Companies

Another new development in Wisconsin law under Act 66 allows a title insurance company to record an affidavit of satisfaction for a residential mortgage if the secured creditor does not act within thirty days after it receives notification from the title insurance company regarding full payment of the loan or stated payoff amount. The substance and effect of the affidavit of satisfaction are further discussed in the law, but are not discussed here.

Conclusion

While the new law has a number of minor changes from the previous Wisconsin laws regarding satisfaction of mortgages, the most meaningful change for Wisconsin lenders is the obligation to timely furnish free payoff statements upon request from an Entitled Person. The new provisions regarding affidavits of satisfaction and filings by title companies are relatively innocuous, despite being a significant change in Wisconsin law.

To ensure compliance with the new law, and to protect itself from potential liability, lenders should implement procedures to monitor and timely respond to payoff statement requests on loans secured by real estate, and to record mortgage satisfactions within thirty days of payment.