Discharging a Mortgage - A quick how to guide

Discharging a Mortgage – A quick how to guide

When a seller lists their property for sale with an agent, there are a number of key steps they must take before they sign an Offer and Acceptance.

However we find that, amidst the excitement and flurry of activity involved in the sale of a property, it’s easy for sellers to overlook one vital and time sensitive step – the Discharge of Mortgage with their lender.

The importance of addressing the Discharge of Mortgage sooner rather than later should not be underestimated, for these reasons:

1. When there’s a mortgage on a seller’s property, it will generally be registered on the certificate of title as an encumbrance and must therefore be discharged by the lender before settlement can occur.

2. This can take up to 10 to 12 business days to process if all goes to plan, however sellers should be aware that additional delays can occur due to failure to return documents on time, administration errors, public holidays and hold ups within the lenders’ system.

3. Also, if the seller needs to have a partial discharge, the process can take even longer to complete, up to 4 weeks in fact.

A recent case highlighted the time critical nature of a Discharge of Mortgage when an oversight by a seller’s broker during an inter-family property transaction caused a 4 week delay in settlement.

In this case, a daughter and son-in law were purchasing half of their parents’ family home, choosing to gain finance through the same bank listed with the existing mortgage on the title.

Once the new mortgage was ready, we made contact to book settlement, however no record of a signed discharge was found. After speaking with their broker, he queried whether a discharge was even required and went on to explain that he’d signed the forms with the sellers but relied on the bank to issue all the documents to complete the transaction.

We advised him that a discharge would definitely be required in this situation, a partial discharge of mortgage being the most likely solution. A few days (and numerous calls back and forth) later the broker finally received confirmation from the bank that a partial discharge was required along with valuations of the property.

The result being a 4 week delay in settlement, fortunately it was an inter-family transfer so no penalty fees or interest were charged.

To greatly reduce the risk of having complications with a Discharge of Mortgage delay your next property settlement, we recommend that sellers are informed of the following:

A Discharge of Mortgage is required when they are:

– selling their property

– repaying their mortgage in full

– have paid their mortgage off but documents not lodged to remove it from the title

– re-financing to another loan or lender.

A Discharge of Mortgage is processed by:

– Communicating with the Lender – The seller should contact their lending institution to discuss having their mortgage discharged as soon as possible.

– Completing the Discharge Form – The seller should complete and return the Discharge Authority as soon as possible. We recommend sellers visit a branch and sit down with a banker or bank manager to ensure this form is completed properly and returned to the correct department for processing.

– Completion – Once the bank has the information and instructions they require from the correctly completed Discharge Authority they will prepare the Discharge of Mortgage document that will be taken to settlement. When this is finished the bank will certify the file ready to book. Generally the bigger banks can book for the next business day, the rest want between 2 – 5 clear business days to book. This is the time they “need” to prepare the payout figure for settlement.

Image by @Doug88888 via Flickr.