In December, 2013 the Mortgage Satisfaction Act (2013 Wis. Act 66) became effective in Wisconsin. The new law is modeled after the Uniform Residential Mortgage Satisfaction Act, though there are some significant differences. The Uniform Act was drafted to deal with challenges arising out of the development of the secondary market for residential mortgage loans. As these residential loans are sold or the servicing rights are transferred, challenges can arise in obtaining payoff statements and ultimately satisfying mortgages after a loan has been paid off. Accordingly, the Uniform Act contains requirements for issuing and responding to payoff statement requests, reliance on payoff statements and satisfying mortgages, including by way of an “affidavit of satisfaction.” Importantly, the Uniform Act only applies to satisfying mortgages secured by residential real estate.
However, the law as enacted in Wisconsin is not limited to residential mortgages (except with respect to affidavits of satisfaction). Complying with the law in the commercial context has been difficult for some lenders, in particular as lenders attempt to meet the very specific requirements of a “payoff statement” under the Act.
Under the Act, a payoff statement must, among other things, (1) contain the date on which the payoff statement was prepared and the payoff amount as of that date, (2) contain the information reasonably necessary to calculate the payoff amount as of the requested payoff date, including the per diem interest amount, and (3) not qualify a payoff amount or state that the payoff amount is subject to change before the payoff date.
There are many instances where mortgages secure something other than, or in addition to, a fixed rate term loan such that a lender cannot always provide “the information reasonably necessary to calculate the payoff amount as of the requested payoff date.” Examples include mortgages that secure any of the following: revolving loans, variable rate loans that reset between the date of the payoff statement and the payoff date, undrawn letters of credit with an expiration date after the payoff date, prepayment indemnification obligations, interest rate swaps, and corporate credit cards. Obviously if the principal amount can change, or if an indemnity, swap termination or other amount is determined without the use of a formula, a lender cannot tell you today everything you need to know to calculate the payoff amount for a future date, and therefore cannot comply with the law.
Certain residential mortgages face similar issues (e.g., home equity lines of credit). For this reason the Uniform Act states that the payoff amount may be subject to change if it provides “information sufficient to … request an updated payoff amount … during the secured creditor’s normal business hours on the payoff date or the immediately preceding business day.” For reasons that are not clear, the Wisconsin Act deleted this provision.
How should a lender facing some of the above challenges comply with the payoff statement requirements under the Act? If a portion of the payoff amount cannot be determined at the time the payoff statement is issued, we recommend that the lender provide as much detail as possible regarding how any indeterminable components of the payoff amount will be calculated, when the calculation will be completed, and how and when the final payoff amount as of the payoff date will be available.