The seven mistakes below recur in seller-carry payoff demands brought to the closing table. Each one creates a specific risk — borrower dispute, state servicing-conduct finding, title defect, or IRS penalty. The fix on every one is upstream of the demand itself.

Mistake one — quoting the wrong day-count convention

The holder quotes per-diem interest on a 30/360 convention when the note specifies actual/365, or the reverse. The closing attorney recalculates against the note and disputes the demand at the wire desk. The cure is reading the note’s interest accrual section before the math runs.

Mistake two — running the math from the wrong last paid-through date

The holder calculates accrued interest from the prior billing date rather than the actual last paid-through date on the sub-ledger. The accrued interest figure overstates or understates the demand, and the borrower disputes against the sub-ledger entries. The cure is pulling the last paid-through date from the sub-ledger entry, not the calendar.

Mistake three — missing the §1026.36(c)(3) delivery window

The holder receives the borrower payoff request and delivers the demand outside the seven-business-day window §1026.36(c)(3) requires. The delivery delay holds up the closing, opens the holder to a §1026.36 violation, and triggers a state servicing-conduct finding in any state with a parallel rule. The cure is logging the request date and producing the demand inside the federal window.

Mistake four — mishandling the escrow balance

The holder forgets the final §1024.17 analysis, applies the escrow balance to the payoff without borrower written authorization, or releases the escrow to the borrower without closing the trust account ledger entry. Each path creates a borrower dispute or a trust account reconciliation failure. The cure is the final §1024.17 analysis run against the payoff date with the disposition documented in writing.

Mistake five — omitting the lien release recording fee

The holder builds the demand without the lien release or reconveyance recording fee for the property jurisdiction. The recording fee falls back on the holder after the wire arrives, and the lien release sits unrecorded while the holder absorbs the fee out of pocket. The cure is including the jurisdiction-specific recording fee in the demand.

Mistake six — failing to record the lien release

The holder signs the lien release at the closing but never records it in the property jurisdiction. The borrower pays the note in full but the holder’s lien stays of record against the property. The next borrower transaction encounters the unreleased lien. The cure is recording the release on a tight schedule after the payoff funds clear.

Mistake seven — skipping the final IRS Form 1098

The holder produces no Form 1098 for the payoff year — no January 31 borrower delivery, no IRS transmittal. The borrower cannot claim the mortgage interest deduction, the IRS information return is unfiled, and the holder absorbs 26 U.S.C. §6721 penalty exposure. The cure is the final 1098 on the standard January schedule following the payoff year.

Frequently Asked Questions

Which of the seven creates the largest dollar exposure?

The per-diem and date-math errors. A single arithmetic error on the demand drives a borrower dispute that runs through the state servicing-conduct framework, with restitution, penalties, and legal costs stacking against the holder.

Which of the seven creates the longest tail of risk?

The unrecorded lien release. The release sits unrecorded until the next borrower transaction surfaces the gap, and the cure runs through corrective recording and borrower notice in the property jurisdiction.

What single discipline addresses all seven?

Engaging a licensed servicer at origination. The servicer produces the demand on the rule’s schedule with the math tied to the sub-ledger, the escrow disposition documented, the lien release prepared and recorded, and the year-end 1098 filed on schedule.

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