What Is a Deed of Reconveyance?
A mortgage holder issues a deed of reconveyance to indicate that the borrower has been released from the mortgage debt. The deed transfers the property title from the lender, also called the beneficiary, to the borrower.
This document is most commonly used when a mortgage has been paid in full. It includes a legal description of the property as well as the property’s parcel number, and it's often notarized. Previous to satisfying the mortgage, the borrower held what is referred to as a "deed of trust."
Some states use a satisfaction of mortgage document rather than a deed of reconveyance, and states that recognize deeds of trust, such as California, will instead issue a full reconveyance in this case, signed by the trustee and notarized.
How Deeds of Reconveyance Work
A deed of reconveyance is recorded in the county where the property is located. Once the deed has been recorded, any search on that property will show that the lien has been paid in full.
A property with a lien against it cannot be sold unless the lien is a mortgage and arrangements have been made to pay it 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.
Deed of Reconveyance vs. Security Interest
The bank has a security interest in the home while the mortgage is still outstanding. The bank can foreclose on the borrower, evicting him and taking possession of the home, if the borrower defaults on paying the mortgage. The lender can then sell the property to attempt to fulfill the unpaid mortgage obligation after the foreclosure process is complete.
The deed of reconveyance proves that the bank no longer has a security interest in the home. A homeowner who has received a deed of reconveyance can't be foreclosed upon by the lending institution, and he can transfer the property at any time, free and clear of the lien. He should record it with the county in which the property is located.
- A deed of reconveyance is most commonly issued when a mortgage has been paid in full.
- A homeowner who has received a deed of reconveyance cannot be foreclosed upon by the lending institution.
- Lenders of second mortgages or home equity lines of credit (HELOCs) that maintain a security interest in the home after the first mortgage is paid off can still assert their right to foreclose on the property for their particular loans.
A homeowner can still be at risk of foreclosure by the local government if she doesn’t make timely property tax payments. This process can be initiated by written notice and without involving the court in states that recognize a non-judicial foreclosure process, so these owners might not receive much in the way of warning. A deed of reconveyance has no effect on or interaction with property taxes.
The Department of Veterans Affairs offers personalized assistance to veterans and service members who are at risk of foreclosure.
Second mortgages or home equity lines of credit (HELOCs) typically give the lending institution a security interest in the home when the property serves as collateral for that particular loan. These lenders can still assert their rights to foreclose as well in the event the borrower defaults. A deed of reconveyance related to the first mortgage would have no effect on these loans.