A deed of reconveyance is a crucial document for property owners, transferring the title of a property from a mortgage lender to the borrower once the loan has been fully paid off.
Key Takeaways
- A deed of reconveyance is issued upon complete repayment of a mortgage.
- It confirms the transfer of the property title from the lender to the borrower.
- Failing to record a deed of reconveyance can complicate future property sales.
Understanding How a Deed of Reconveyance Works
When a homeowner fully pays off their mortgage loan, the lender issues a deed of reconveyance. This notarized document, including a legal description of the property, is recorded in the county where the property is located.
Any subsequent title search will reflect the cleared lien, confirming the debt has been satisfied and the risk of foreclosure is removed. Some states use a place-specific ‘satisfaction of mortgage’ document, serving a similar purpose.
For instance, refinancing an existing mortgage necessitates issuing a deed of reconveyance for the previous loan once it is paid off during the refinancing process.
Even with second mortgages or home equity loans acting as collateral, lenders still hold foreclosure rights if loan obligations are unmet. The deed of reconveyance for a primary mortgage does not invalidate any secondary loan agreements or associated risks.
Essential Components of a Deed of Reconveyance
A typical deed of reconveyance includes:
- The homeowner’s name and address.
- The lender/trustee’s name.
- Property description and parcel number from the original deed.
- Confirmation that the loan obligations have been met, transferring title to the borrower.
- Signature lines for all parties and a notary section.
Illustrative Example of a Deed of Reconveyance
Imagine a buyer taking a $400,000 mortgage to purchase a home. Once they fully repay the loan, the lender formalizes this repayment by creating the deed of reconveyance. This document, usually prepared within several weeks post-repayment, will state the mortgage loan’s full repayment and the transfer of property ownership to the borrower.
Frequently Asked Questions
What Is the Difference Between Security Interest and Deed of Reconveyance?
A mortgage creates a security interest for the lender, allowing foreclosure upon default. A deed of reconveyance, however, confirms the loan’s fulfillment, negating the lender’s security interest and freeing the borrower from foreclosure threat.
What if the Deed of Reconveyance Is Not Filed or Filed Improperly?
If improperly recorded or unfiled, the deed of trust remains active against the property. This can cause considerable issues for homeowners looking to sell, as a clear title cannot be provided.
Can Homeowners Face Foreclosure with a Deed of Reconveyance?
Yes. Despite having a deed of reconveyance, unpaid property taxes can still lead to foreclosure. Some states permit nonjudicial foreclosures based on tax arrears, unrelated to the mortgage.
What Is the Difference Between Conveyance and Reconveyance?
Conveyance transfers property ownership from one party to another. Reconveyance specifically transfers title back to the borrower from the lender upon full repayment of the loan.
The Bottom Line
A deed of reconveyance clears a mortgage lien and formally transfers the property title to the borrower once the mortgage is repaid. This must be recorded with a local authority, ensuring the homeowner’s clear title, unencumbered by the previous mortgage conditions.
Related Terms: security interest, title search, foreclosure, deed of trust, title insurance, refinancing, home equity loans.
