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.

RELATED TERMS
  1. Deed Of Release

    A legal document that removes a previous claim or lien on an ...
  2. Trust Deed

    1. A formal document which outlines the terms of a trust agreement. ...
  3. Unrecorded Deed

    A deed for a tangible piece of property that is not filed with ...
  4. Satisfaction of Mortgage

    A document generated and signed by a mortgage lender, acknowledging ...
  5. Home Mortgage

    A home mortgage is a loan given by a bank, mortgage company or ...
  6. Mortgage

    A debt instrument, secured by the collateral of specified real ...
Related Articles
  1. Investing

    Understanding Property Deeds

    A property deed is an instrument that enables sellers to convey real property to buyers, who become the new owners.
  2. Investing

    Five Things To Know About Quitclaim Deeds

    General warranty deeds provide the buyer with the most protection; quitclaim deeds provide the least.
  3. Personal Finance

    5 Reverse Mortgage Scams

    Reverse mortgages can be a valuable financial tool, but the mortgage market is fraught with scams and schemes.
  4. Personal Finance

    Guidelines for FHA Reverse Mortgages

    FHA guidelines protect borrowers from major mistakes, prevent lenders from taking advantage of borrowers and encourage lenders to offer reverse mortgages.
  5. Financial Advisor

    Reverse Mortgages: Right for Clients? Not Often

    Reverse mortgages are a legitimate vehicle for folks age 62 and up to tap into the equity in their homes for other uses. Here's what to consider with them.
  6. Personal Finance

    Top 6 Mortgage Mistakes

    These common errors could end in foreclosure.
  7. Personal Finance

    Mortgage Options for Underwater Homeowners

    Find out what options are available when your mortgage is greater than the value of your home.
  8. Personal Finance

    5 Signs a Reverse Mortgage Is a Bad Idea

    Here are the key situations when you should probably pass on this type of home loan.
  9. Managing Wealth

    Tips For Transferring A House Title

    Transferring a house title can be complicated at times. Here are some guidelines to help you get through the process.
  10. Retirement

    Additional Streams of Income for Seniors

    Find out how a reverse mortgage can work in your favor during retirement.
RELATED FAQS
  1. I want to transfer my house title to my child, what are the costs and tax consequences ...

    The costs associated with a deed transfer will vary by state and by how the transfer is accomplished. Filing a deed yourself ... Read Answer >>
Trading Center