I Can’t GIVE No Satisfaction (with Apologies to the Rolling Stones)

A byproduct of the current real estate market is the need for lenders and other creditors to distinguish between a lien release and a lien satisfaction.

Whether the lien at issue is a mortgage lien, a mechanics lien, a judgment lien, or some other type of lien, whether a release or a satisfaction is to be recorded to extinguish the lien has great implications for the lienholder.

A lien is an encumbrance on a real estate title which secures the repayment of some obligation.  For example, in the case of a mortgage lien, the mortgage lien is security for the repayment of the mortgage note.  Once the mortgage note is paid in full, the holder of the mortgage records a “satisfaction of mortgage.”

What happens, though, when the mortgage is not paid in full?  That’s the situation that many junior lienholders find themselves in right now with the high volume of “short sales” taking place.  Faced with the prospect of having their junior mortgage lien extinguished when the first mortgage holder forecloses on its mortgage, the junior lienholder will typically offered something to approve the sale.   When it does so, the junior lienholder agrees to release its lien on the property at closing in exchange for the short payment.  In many instances, however, the junior lienholder will reserve its right to pursue other collection actions against the borrower to collect the unpaid balance.

If the junior lienholder were to issue a satisfaction of its mortgage, however, then the junior lienholder would be prevented from pursuing further action.  That is because a “satisfaction” implies that the underlying obligation which the lien secures has been “satisfied”; i.e., it has been paid in full.  Absent a full payoff, the lienholder should only ever agree to execute a “release of property from mortgage lien.” 

The same holds true for mechanics liens and judgments liens.  If a satisfaction is issued, the lienholder will lose the right to pursue further collection actions (a claim of unjust enrichment, for example, in the case of a mechanics lien claimant, or garnishment or other enforcement actions in the case of the judgment creditor).  If the lien must be extinguished, the lienholder should offer only to give a release of lien. 

In other words, to borrow from the classic Rolling Stones song, if the lienholder has not been paid in full, then the lienholder should say “I can’t GIVE no satisfaction”!