Word docs have pop-up indicating they are "reserved"

My office (legal) uses Word templates for all of our forms. The person who originally created the forms is no longer with us and I have taken over. When the other person left, we began having this problem:
A template is opened and then saved as a document in our own file to work with. The templates are all set up to be read-only so that nobody accidentally saves their changes over them. When we go in to open that document later, we get a pop-up box that says "[name of file].dot is reserved by [name of prior administrator." We then have the option to open as a read-only or click cancel. If we click either option the document opens up fine and we are able to make changes and save it again.
The problems:
1. The pop-up is driving everyone crazy!
2. We are trying to open a document so why is the pop-up saying that the template (.dot) is reserved?
3. We are able to open the doc and save changes so its not technically read-only—why is it "reserved?"

We are at the point where we are considering taking off all of the passwords to make the templates not read only. This will create a huge problem though because we are sure there will be mistakes and they will get saved over.

 

Thnaks but I forgot to say that we tried this (to go in to security options, remove the password as being required) and then re-saving. It still pops up every time.