California Civil Code Section 2941 History
In Trustors Security Service v. Title Recon Tracking Service (1996) 49 Cal. App. 4th 592 [56 Cal. Rptr. 2d 793], the court summarized the context in which Civil Code section 2941 was passed.
"Historically, when a lender was paid in full the lender/beneficiary would send the necessary documentation and reconveyance fee to the trustee and request it to execute a reconveyance.
If the debtor/trustor continued to own the property the trustee was directed to record the reconveyance in the county recorder's office.
Alternatively, if the debtor/trustor had sold or refinanced the property, the trustee executed the reconveyance documents and generally deposited them into escrow for recordation upon close of escrow.
"Prior to 1989 there was no specified time period within which a reconveyance had to be recorded after full payment of the loan.
Apparently, lenders were not particularly diligent in ensuring reconveyances were executed and recorded once their loans were satisfied despite civil penalties for failure to do so.
The problem was apparently particularly acute with large commercial lenders with in-house trustee departments.
As a result many property owners experienced problems selling and clearing title to their property. . . . Title insurers experienced problems of their own.
During this period these companies employed staff [in some instances, up to 50 percent of their employees] for the sole purpose of confirming old loans appearing as liens against real property had in fact been paid off. . . . Consumers made numerous complaints to the Attorney General's office [leading to proposed changes to section 2941.] . . . In its current form, under section 2941 lenders and trustees are subject to both civil and criminal penalties for failing to comply with the statutory deadlines for effecting reconveyances." (49 Cal. App. 4th at pp. 596-597.)