What Is a Deed of Reconveyance?
A deed of reconveyance is a document that transfers the title of a property from a mortgage lender to the borrower once the loan has been paid.
- A deed of reconveyance is issued when a mortgage has been paid in full.
- The deed of reconveyance confirms that the title has been transferred from the lender to the borrower.
- If a deed of reconveyance is not recorded in the local county or recorder's office, the homeowner will have difficulty selling the home.
How a Deed of Reconveyance Works
A deed of reconveyance is issued to borrowers once a mortgage loan has been paid in full. The document is created by the lender, is notarized, includes a legal description of the property, and is recorded in the county where the property is located.
Any title search completed on the property will show that the lien has been paid in full. Since the loan is satisfied, the borrower is no longer at risk of foreclosure.
A deed of trust is an agreement between a home buyer and a lender and states that the home buyer will repay the loan and that the mortgage lender will hold the legal title to the property until the loan is fully paid.
When a property has a lien against it, it cannot be sold. However, if an existing mortgage will be satisfied from the proceeds of the home sale, the recording of the deed of reconveyance becomes a part of the closing process of the sale, and its recording is commonly handled by a title insurance company.
When homeowners refinance their homes with a new mortgage, they also receive a deed of reconveyance showing that the previous mortgage has been paid since a new mortgage has been established in a refinancing situation.
Second mortgages or home equity loans give the lending institution a security interest in the home as the property often serves as collateral for that loan. Lenders can assert their rights to foreclose if a borrower defaults on these second loans. The deed of reconveyance related to the first mortgage has no effect on the second loan nor protects the homeowner.
A deed of reconveyance differs from state to state or from lender to lender. In states that use trust deeds rather than mortgages, a third party known as a trustee will hold the mortgage on behalf of the lender. Some states use satisfaction of mortgage documents rather than a deed of reconveyance but these serve the same purpose.
What's Included in a Deed of Reconveyance?
The deed of reconveyance will typically include:
- The name and address of the homeowner/mortgage borrower.
- The name of the lender/trustee.
- A description of the property and parcel number based on the original deed.
- Documentation that the borrower has fulfilled their obligation to the lender and that the property that had been secured by the mortgage or trust deed now belongs to the borrower.
- Lines for signatures of all parties and a section for a notary to indicate that they witnessed the signing.
Example of Deed of Reconveyance
If an individual purchases a house and takes out a mortgage of $400,000, borrowing from a bank or mortgage lender, the property will serve as collateral under the deed of trust.
Once the loan is fully paid, the lender will certify that the debt has been paid and create the deed of reconveyance, usually within several weeks.
The deed of reconveyance will indicate that the mortgage loan is paid in full, and show that the borrower has the title and full ownership of the property.
Frequently Asked Questions
What Is the Difference Between Security Interest and Deed of Reconveyance?
The lender has a security interest in the home while the mortgage is outstanding and can foreclose on the borrower, evict them, and take possession of the home if the borrower defaults on the loan. The deed of reconveyance proves that the lender no longer has a security interest in the home and the homeowner cannot be foreclosed upon by the lending institution, and they can transfer the free and clear title of the property at any time.
What if the Deed of Conveyance Is Not Filed or Filed Improperly?
If no deed of reconveyance is recorded or if it is recorded with errors with the record’s office, such as the local county courthouse, it creates a title issue. The deed of trust will remain a burden against the property, and the homeowner may experience difficulties when trying to sell the home.
Can a Homeowner Face Foreclosure With a Deed of Conveyance?
Even after a homeowner has received a deed of reconveyance, they risk foreclosure by the local government if they don’t make timely property tax payments. This process can be initiated by written notice and without involving the court in states that recognize a nonjudicial foreclosure process. A deed of reconveyance does not protect a homeowner with unpaid property taxes.
What Is the Difference Between Conveyance and Reconveyance?
Conveyance transfers ownership of property from one entity to another. A deed is an instrument of conveyance, describing the parties and the property being transferred. A lender who holds title to the property must issue a deed of reconveyance to transfer the property title to the borrower.
The Bottom Line
A deed of reconveyance is a document that transfers the title of a property to the borrower from the bank or mortgage holder once a mortgage has been satisfied. It clears the lender from the title to the property. The deed of reconveyance is completed and signed by the lender and filed with the local recording office, such as the county courthouse.