What Is a Deed of Reconveyance?
A deed of reconveyance is a document that transfers a property's title from a mortgage lender to the borrower, indicating that the borrower has fulfilled their obligation to repay the loan and now owns the property.
- A deed of reconveyance is 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 loans 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.
How a Deed of Reconveyance Works
A deed of reconveyance is commonly issued to borrowers, or mortgagors, once their mortgages have been paid in full. It includes a legal description of the property, with the property's parcel number and other information, and it's often notarized. Some states use a satisfaction of mortgage document rather than a deed of reconveyance, but it is essentially the same.
The 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 sale, and its recording is commonly handled by a title insurance company.
When homeowners refinance their homes with a new mortgage they should also receive a deed of reconveyance showing that the old mortgage has been paid off.
Deed of Reconveyance vs. Security Interest
The lender has a security interest in the home while the mortgage is still outstanding. It can foreclose on the borrower, evict them, and take possession of the home, if the borrower defaults on paying the mortgage. The lender can then sell the property to try to recoup its money.
The deed of reconveyance proves that the lender 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 they can transfer the property at any time, free and clear of the lien.
Example of a Deed of Reconveyance
A deed of reconveyance is a relatively simple form that can differ from state to state or lender to lender. In states that use trust deeds rather than mortgages, a third party known as a trustee will be involved in the transaction. (The trustee technically "holds" the mortgage on behalf of the lender, who's referred to as the "beneficiary.")
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 based on the original deed or similar legal document.
- Language to the effect that the borrower has fulfilled their obligation to the lender and 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.
Even after they've received a deed of reconveyance, a homeowner can still be at risk of 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 non-judicial foreclosure process, so owners in this situation might not receive much in the way of warning. A deed of reconveyance has no effect on or interaction with property taxes.
Second mortgages or home equity loans typically give the lending institution a security interest in the home when the property serves as collateral for that loan. These lenders can also assert their rights to foreclose in the event that the borrower defaults. A deed of reconveyance related to the first mortgage would have no effect on these loans.