Lender’s Edge Newsletter - Payoff Letter Pitfalls for Commercial Lenders

Sep 15, 2026

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Payoff Letter Pitfalls for Commercial Lenders analyzes disputes that arise when a borrower repeatedly requests payoff letters without providing refinancing or sale details, including scenarios involving default, suspected insider sales, nonresponse about collateral, and disagreements over amounts needed to discharge a mortgage or deed of trust. It summarizes the Missouri Court of Appeals case Theresa Grisham, et al v. The Mission Bank, covering the trial court’s view on whether a payoff letter is required and what information must be included.

LanguageEnglish

CategoryLetters

FormatPDF

Pages3

Reading Time1 min

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Payoff Letter Pitfalls for Commercial Lenders

Common payoff letter scenarios

Unusual payoff request circumstances

Trial court ruling in Grisham

Whether a payoff letter is required

What information a payoff letter must include

January 2019 Author: David D. Ferguson Shareholder 816.360.4311 [dferguson@polsinelli.com](dferguson@polsinelli.com) Additional Contacts: Llynn K. White Shareholder 314.552.6804 [lwhite@polsinelli.com](lwhite@polsinelli.com) Brett D. Anders Shareholder 816.360.4267 [banders@polsinelli.com](banders@polsinelli.com) Lender’s Edge Newsletter Payoff Letter Pitfalls for Commercial Lenders By David D. Ferguson A borrower’s request for a payoff letter on a secured commercial loan is typically a completely noncontroversial matter: an honest borrower has located a buyer for its property, or found another lender to refinance the borrower’s debt, and needs a statement of the amount required to pay the debt and discharge the existing lien. In such cases, the lender preparesa payoff letter stating the amounts due on the loan, provides the letter to a title company or other closing agent, and the lender’s loan is paid without incident. How should the existing lender handle a payoff request in more unusual circumstances? For example, what is a lender to do when faced with a borrower who repeatedly demands payoff letters on a secured loan, but never provides the lender with any details regarding any proposed refinancing or sale? And what if that same borrower is in default on the secured debt, and the lender reasonably believes the borrower intends to sell the collateral to an insider for less than reasonably equivalent value? What if, in the midst of demanding payoff letters from the lender, the borrower fails to respond to the lender’s questions regarding the location of the collateral? What if the borrower disputes the amount required to discharge the lender’s mortgage or deed of trust, and threatens to sue the lender if the lender proceeds with foreclosure? In the face of such circumstances, is the lender required to provide a payoff letter at all and, if so, what information must the lender include? A lender recently faced these questions and ultimately won before the Missouri Court of Appeals in the case of Theresa Grisham, et al v. The Mission Bank. Trial Court Ruling The trial court in Grisham ruled that the Bank’s letters to the borrower detailing the amounts due on the borrower’s loans did not constitute a proper payoff letter and that the lack of such a statement prevented the borrower from closing a sale of the real estate collateral securing the Bank’s loans. Based on that conclusion, the trial court found that the Bank’s foreclosure on the real estate collateral was wrongful and awarded damages to the borrower. Among the issues at trial were whether a lender is required to provide a payoff letter on a commercial loan, and, if so, whether the Bank’s letters in the Grisham case constituted proper payoff letters. The trial court accepted the borrower’s position that Missouri law does in fact require the delivery of a payoff letter on a commercial loan, without regard to the circumstances surrounding the request for such letter. The Bank had delivered letters stating the amounts due on the loans, but none of the letters contained any promise to release the Bank’s liens upon payment. Further, the borrower argued that the Bank’s letters overstated the amounts due on the various loans. Experts for the Bank and the borrower disagreed about the required Atlanta | Boston | Chicago | Dallas | Denver | Houston | Kansas City | Los Angeles | Nashville | New York Phoenix | San Francisco | Seattle | Silicon Valley | St. Louis | Washington, D.C. | Wilmington [polsinelli.com](polsinelli.com) January 2019 Lender’s Edge Newsletter elements of a proper payoff letter. The trial court sided with the borrower determining that the Bank’s letters were insufficient, the lack of a proper payoff letter had prevented the borrower from selling the collateral and that the Bank therefore acted wrongfully by foreclosing on the collateral after the borrower failed to pay the debt as stated in the Bank’s letters.

FAQs

When are payoff letters typically considered noncontroversial in commercial lending?

They are usually straightforward when a borrower has located a buyer or refinance and simply needs a statement of the amount due to pay off the debt and discharge the existing lien.

What unusual facts raised concern about payoff requests in the Grisham matter?

The lender faced repeated payoff-letter demands without refinancing or sale details, possible default and insider-sale intent, failure to respond about collateral location, and disputes over payoff amounts and potential foreclosure.

How did the trial court view the Bank’s letters and the duty to provide a payoff letter?

The trial court held the letters were not a proper payoff letter because they did not include promises to release liens upon payment and concluded a payoff letter duty was imposed despite lack of contractual, statutory, or common-law requirement.

Sep 15, 2026

Uploaded by Quinn