What to do if a lien was paid off but never released on a property and now the lender is out of business?

UPDATED: Aug 27, 2011

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What to do if a lien was paid off but never released on a property and now the lender is out of business?

My mother-in-law has signed a contract with a cash home buyer to close her home in about 2 weeks. She had taken a loan out for $11,000 about 15 years ago with a bank that is now long since out of business. Now it has come up that the bank put a lien on the house that was not released even though she paid it in full. However she cannot find the paperwork proving she paid it. Could you please let me know what can happen or what we can do?

Asked on August 27, 2011 Rhode Island


FreeAdvice Contributing Attorney / FreeAdvice Contributing Attorney

Answered 11 years ago | Contributor

In such a situation where a property owner has paid off a lien recorded on his or her home and the lien of record is an impediment to the close of the sale where it cannot be removed in a timely fashion, one option used by many escrow and title companies is for the property owner to post a bond for the lien that was paid off but where there is no full reconveyance of it recorded in order for the sale to close with the new buyer.

This may be an option for your mother-in-law so that the sale can close in a timely manner. Another option is to perhaps place $11,000.00 in escrow as security to allow the sale to close.

Another option for your mother-in-law to establish payment in full of the $11,000.00 loan is to obtain copies of all her bank records from the bank itself showing payment.

Good luck.

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