What is a 'Deed Of Reconveyance'
A deed or reconveyance is a document issued by a mortgage holder indicating that the borrower is released from the mortgage debt and transfers the property title from the lender, also called the beneficiary, to the borrower, also called the trustor. This document is most commonly issued when a mortgage has been paid in full. It contains a legal description of the property and the property’s parcel number and is often notarized. Some states use a satisfaction of mortgage document instead of a deed of reconveyance.
BREAKING DOWN 'Deed Of Reconveyance'The deed of reconveyance is recorded in the county where the property is held. Once the deed has been recorded, any search on that property will show that liens have been paid in full. A property with a lien against it cannot be sold, unless the lien is a mortgage that will be paid in full from the proceeds of the home sale. In such situations, recording the deed of reconveyance is part of the closing process of the home’s sale, and its recording is commonly handled by a title insurance company.
Mortgage Debt and Security Interest
While the mortgage is outstanding, meaning that the borrower still owes the bank something for the loan used to purchase the home, the bank has a security interest in the home. If the borrower stops paying the mortgage, the bank can foreclose on the borrower, evicting him or her and taking possession of the home. Once the foreclosure process is complete, the lender can proceed with selling the home to fulfill the unpaid mortgage obligation.
Once the borrower has repaid the debt in full, the deed of reconveyance proves that the bank no longer has a security interest in the home. A homeowner with a deed of reconveyance cannot be foreclosed on by the original lending institution.
Additional Foreclosure or Asset Seizure Risks
Regardless of the presence of a deed of reconveyance, the homeowner is still at risk of foreclosure by the local government if he doesn’t make timely property tax payments. Additionally, any second mortgages or home equity lines of credit (HELOCs) resulting in a financial institution maintaining a security interest in the home may still assert their right to foreclose on the property based on the home's function as collateral for the aforementioned loan.
Additionally, while primary residences may be subject to a level of protection in bankruptcy proceeding, any additional properties may be subject to seizure or liquidation in cases where an associated judgement requires the properties be surrendered to repay other obligations.