The questions below cover the payoff demand decisions every seller-carry holder faces from the borrower request through the closing-out file and the year-end tax reporting. The answers point to the federal rule, the state-law analogues, and the operational discipline a clean payoff requires.

Timing and the federal rule

Question one — How long does the holder have to deliver the demand?

12 C.F.R. §1026.36(c)(3) requires delivery within a reasonable time after the borrower request, and a reasonable time is no longer than seven business days. State law layers on top, and the holder runs to the shorter window.

Question two — When does the seven-business-day clock start?

On the date the holder receives the borrower request. Documenting the request date in the loan file fixes the clock start and the compliance benchmark.

The math

Question three — What components does the demand include?

The unpaid principal balance, the accrued interest through the stated payoff date, the escrow disposition (refund or application), any unpaid late fees and authorized charges, and the lien release or reconveyance recording fee.

Question four — Which day-count convention applies?

The convention the promissory note specifies. A 30/360 convention, an actual/365 convention, and an actual/actual convention each produce a different per-diem on the same principal and rate. The note language controls.

Question five — How does the holder handle a partial month of interest?

The accrued interest runs as the per-diem amount multiplied by the days from the day after the last paid-through date through the stated payoff date. The partial month accumulates per-diem-by-per-diem, not as a fraction of a monthly payment.

Escrow handling

Question six — How does the holder handle the escrow balance at payoff?

Run the final §1024.17 analysis through the payoff date, identify the borrower-side balance, and document the disposition — application against the payoff with the borrower’s written authorization, refund at the closing table through the title company, or post-closing check from the holder.

Question seven — What if the escrow is short at payoff?

A shortage runs as an addition to the payoff demand for the borrower-side shortage figure, with the disposition documented and the borrower notified. The shortage path matches the §1024.17 framework for handling shortages identified in any analysis.

Documentation

Question eight — What does the holder retain after the payoff?

The demand statement, the wire receipt, the final sub-ledger showing the payoff entry, the final §1024.17 analysis, the recorded lien release, the borrower payoff completion notice, the final §1026.41 periodic statement, and the year-end Form 1098. The §1024.38(c) retention rule sets the federal floor; state servicer rules layer on top.

Question nine — What records does the holder deliver to the borrower at payoff?

The recorded lien release (or a copy with the recording evidence), the closing-out statement showing the loan termination, the final periodic statement, and the final Form 1098 on the January 31 schedule following the payoff year.

Lien release

Question ten — Who records the lien release?

The holder, the holder’s servicer, or the title company at the closing — the specific party depends on the arrangement at the closing table. The release records in the property jurisdiction, and the recording evidence returns to the holder for the closing-out file.

Tax reporting

Question eleven — When does the final 1098 go out?

By January 31 of the year following the payoff year. The 1098 covers the borrower-paid mortgage interest from January 1 of the payoff year through the payoff date.

Question twelve — What if the borrower has moved by the time the 1098 goes out?

Deliver to the last known address on the closing-out file. The borrower’s forwarding-address responsibility rests on the borrower. The holder’s delivery to the last known address satisfies the §6050H delivery obligation.

Frequently Asked Questions

What is the single most common payoff error on a self-served carry?

The per-diem math error. The closing attorney recalculates against the note and identifies the discrepancy. The cure is reading the note’s accrual section before the math runs.

When should the holder engage legal counsel on a payoff dispute?

At the first signal of a borrower dispute that runs through the §1024.35 or §1024.36 framework, before any state regulator contact, and before any closing-table standoff escalates. Consult qualified legal counsel on the exposure in any specific payoff matter.

Sources

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