The Statewide Title Newsletter and Legal Memorandum

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Issue  90  Article  165
Published:  1/1/2003

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Equity Line Deeds of Trust Haunting You?
Bonnie Windom, Eastern Operations Director

Don’t forget that the payment of the balance on an equity line deed of trust (payment to bring the account to a "zero balance") does not mean that the account will be closed nor that the deed of trust will be canceled of record. Quite the opposite is generally true. Unless the lender is requested to "close the account" upon payment of the balance, the equity line account may remain open.

Horror stories have occurred, and claims have resulted when these deeds of trust have been "paid off" without properly terminating the account. The open deed of trust remains a prior lien even after the sale. Later, the seller, realizing that he/she has an "equity line account", makes a draw on the account. Thus, there is now a superior lien on property that has not been recognized. In many cases when this occurs, it may not be intended to be a fraudulent loan on the seller/borrower’s part. Nonetheless, it can be very troublesome to correct.

Please remember that if the equity line account is not properly closed, any new money advanced after the "payoff" will become a superior lien on the property of the new owner.

Don’t let equity line deeds of trust come back to haunt you! Require that the account be closed upon payoff. Also, be sure to follow-up, and make sure the deed of trust is actually canceled of record.

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