"One Touch" Is Not Enough
In a complex case of first impression, the Appellate Court of Illinois has weighed in on an important aspect of the Illinois Mortgage Certificate of Release Act (“IMCRA”). M & T Bank v. Mallinckrodt, et al., 2015 IL App (2d) 141233 (Sept. 30, 2015, reh’g denied November 2, 2015). IMCRA is the Illinois version of a “one-touch” device that allows a title agent to record the appropriate form of discharge when it knows the mortgage has been satisfied as required by the payoff statement.
After receiving a payoff letter from the “Lender” named in the original mortgage, Title Insurer wired the funds to the account designated by the “Lender” and recorded a certificate of release. It turned out the payoff letter was fraudulently prepared and submitted by the president of the original “Lender.” It also turned out that the mortgage was held by MERS as mortgagee for the Lender. Unbeknownst to Title Insurer, MERS had previously assigned the mortgage to M & T Bank, which did not receive any of the payoff funds.
Even though Title Insurer complied with the IMCRA (“[r]eceipt of payment pursuant to the lender's written payoff statement shall constitute authority to record a certificate of release” [emphasis supplied]), the Court held there were two questions of fact that needed to be determined. First, should Title Insurer have checked with MERS to determine the “holder of the note,” since it knew MERS was the listed mortgagee; and second, whether they could have reasonably relied on the fraudulent payment statement given that it was provided by the president of the lender listed on the mortgage?
The “one-touch” approach has been touted as a way of accelerating the mortgage satisfaction process. The Uniform Law Commission has developed the “Residential Mortgage Satisfaction Act,” which has already been adopted in five states. Some states such as Illinois, Minnesota and South Carolina have their own versions of “one-touch” and other states are considering the approach. This case points up the risks inherent in “steamlining” a system where multiple parties and high information costs can lead to unforeseeable problems.