A deed of release is a pivotal legal document designed to remove previously established claims or obligations on an asset or under a contract. It formally concludes a binding agreement, offering peace of mind and a clear title to involved parties. For instance, this key document might appear when a lender transfers the title of real estate to a homeowner, signifying a satisfied mortgage. In essence, a deed of release liberates both parties from their former commitments.
Key Insights
- Complete Freedom: A deed of release permits parties to disengage from former obligations, like the elimination of payments under a satisfied mortgage term.
- Title Transfer: Typically used in mortgage scenarios, this deed denotes that the lender holds the real property title until all mortgage terms are met.
- Employment Liberation: This document can be used to discharge both the employer and employee of their duties under an employment contract, often following a severance package.
- Business Loans: It may also dissolve personal guarantee commitments attached to business loans.
How Deeds of Release Work
Understanding a deed of release becomes easier when viewed through the lens of a common life milestone such as homebuying. Most people secure their homes with mortgages from financial institutions. These mortgages aren’t just given on goodwill; the bank takes a legal claim against the house as a form of collateral until the loan is completely paid.
A mortgage deed of release comes into play when the borrower meets all the payment terms or pays off the loan prematurely. Until then, the lender holds the title to the property and maintains it as secured collateral, reducing their risk. When the loan is paid off, legal counsel for the lending institution drafts the deed of release, indicating the loan’s satisfaction, lien removal, and title transfer to the homeowner.
Post-release, the homeowner owns the property unfettered by any lender-imposed terms, and their lending account closes. It’s crucial to record the deed of release with the same institution that documented the original mortgage to ensure the lien removal is properly documented.
Types of Deeds of Release
Employment Agreements
Employment arrangements often necessitate deeds of release, freeing both employer and employee from former contractual obligations. This is typical in cases involving severance packages. The deed of release in such scenarios articulates severance compensation details and terms, such as payment duration. Additionally, it may cover confidentiality obligations and restraint clauses, preventing the departing employee from forming competing businesses or soliciting existing clients.
Tip: Always review a deed of release thoroughly in a workplace setting to understand its full implications on your obligations.
Example Scenarios of a Deed of Release
Real Estate and Mortgages
The most frequent example arises during home purchasing. The home acts as collateral for a mortgage loan held by the lender, which places a lien on the property. Upon completing the mortgage and fulfilling its terms, a mortgage deed of release is executed.
Personal Guarantees
Another pertinent example concerns personal guarantees, where an individual assumes responsibility for a debt on behalf of a business. Terminating this responsibility, irrespective of whether the loan itself is paid off, is managed through a deed of release.
Note: While terminating a Uniform Commercial Code (UCC) lien creates different implications compared to ending a personal guarantee, both involve complex legal and financial considerations.
It’s also possible to find sample deed of release forms online, but ensure that any form used conforms to your state’s specific requirements.
Special Situations
Bank Receivership
If your lending institution fails and falls under FDIC receivership, contact the Federal Deposit Insurance Corp. (FDIC) for assistance if you’ve not received a deed of release. The FDIC can help resolve the issue, and their interactive tools can ascertain if your bank was government-acquired due to receivership.
Related Terms: title, real estate, restraint clauses, FDIC.
References
- Corporate Finance Institute. “Deeds of Release”.
- Uniform Law Commission. “Uniform Commercial Code”.
- FDIC. “Obtaining a Lien Release”.
