Deed of Reconveyance: What Is It and How Does It Work?
EG
Summary:
A deed of reconveyance is a legal document that transfers the title from your mortgage lender to you. This document is issued once you’ve fully paid off your mortgage.
Most people use a mortgage to buy their home, which requires a lien on the property. As long as you have a lien, your lender holds the title to your property. The process can be confusing, and it’s important to have a full understanding of it before you buy a home.
If you already own a home and are getting close to paying it off, then you’ll soon have a clear title to your home. Once that happens, you’ll be issued a deed of reconveyance, which shows that your mortgage loan has been fully paid off. Keep reading to learn what a reconveyance deed is, how it works, and to see an example.
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What is a deed of reconveyance?
A deed of reconveyance is a legal document that’s issued once a mortgage is fully paid off and transfers a property title from the lender to the borrower. Most importantly, a reconveyance removes the lien (also known as an encumbrance) from your property title.
While the lien was in place, your mortgage lender still had a claim to your home and could initiate foreclosure if you failed to make your mortgage payments. Once the loan has been repaid and the deed of reconveyance has been filed, the lien is removed, and the lender no longer has a claim to the home.
What’s included in this document?
Generally, a deed of reconveyance involves two parties: the trustee and the trustor. The trustee is the party that holds the title. It’s often the mortgage lender, but it could also be a neutral third party or escrow company. The trustor is the homebuyer who is paying back the loan.
A deed of reconveyance usually includes:
- Names of the parties involved (the borrower and lender/mortgage holder)
- The address of the home
- A description of the property
- A confirmation that the mortgage has been fully paid
- A signature from the trustee and a notary public
How does a deed of reconveyance work?
A deed of reconveyance works differently depending on how you finance the home. You could do this in a few different ways.
- All in cash. If you purchase a house with cash instead of a mortgage, you will immediately receive the reconveyance deed.
- With a loan. Most homeowners fall into this category. If you finance a home with a first mortgage or deed of trust, you’ll only receive the deed of reconveyance once you finish paying off the loan.
- Using multiple loans. If you have multiple liens on your property, paying off your mortgage doesn’t remove them all. For example, suppose you have both a mortgage and a home equity loan on your property. Paying off your mortgage would remove your lender as a lienholder from your property’s title. But until you pay off your home equity line of mortgage, that lender will still have a claim to your home until you’ve finished paying off that loan.
- Refinancing your mortgage. Similarly, a deed of reconveyance will be filed if you refinance your home. However, while the existing loan lender will be removed as a lienholder from your title, a lien for the lender of the refinance loan will then be added to your title. In that case, you still don’t have free and clear ownership of the property, since the new lender has a security interest.
Pro Tip
Remember that once you’ve received a deed of reconveyance, other parties could still place liens on your home. For example, your local government could place a tax lien on your property if you fail to pay your property taxes.
What is a security interest?
Security interest refers to the legal stake a lender has in a property while there’s still an outstanding mortgage and a lien on the home. The security interest allows the home to serve as collateral for the loan, and it gives the lender the right to foreclose on the home if the borrower fails to make their mortgage payments. The deed of reconveyance removes this security interest.
Deed of reconveyance example
Suppose that Stanley buys a home for $300,000 with a total mortgage amount of $270,000. Stanley has a 30-year loan, and until he pays off the mortgage, his lender will have a lien on his property title. If Stanley stops paying his mortgage, the lender is likely to foreclose on the property and Stanley will lose his home.
Stanley has decided he doesn’t want to wait the full 30 years to pay off his mortgage, and he starts making extra payments. After just 10 years, Stanley has fully paid off his loan. Once the lender receives the final payment, they file a deed of reconveyance and record it with the local recorder of deeds. The lien will be removed from Stanley’s title, and he’ll be the full owner of the home.
Deed of reconveyance vs. satisfaction of mortgage
You may hear the term deed of reconveyance used interchangeably with satisfaction of mortgage document. It’s true that the two legal documents mean essentially the same thing—that the borrower has fully repaid their loan and the lien on the property title has been cleared.
Whether the term deed of reconveyance or satisfaction of mortgage is used depends upon the state in which you live. Some states use deeds of trust, which are similar to mortgage agreements between borrowers and lenders. States that use deeds of trust also use deeds of reconveyance, while states that use mortgage agreements also use satisfaction of mortgage documents.
How to record a deed of reconveyance
It can be exciting to receive a copy of the deed of reconveyance from your mortgage lender. After all, it means you’ve fully paid off your home and have complete ownership of the property. However, it’s more important to ensure that the deed has been filed with the local recorder of deeds with the county government.
When the reconveyance deed is recorded with the local government, the lien is removed from the property title, also removing the lender’s claim to the home. In most cases, a lender has between 30 and 60 days (depending on the state) to submit the document.
Where you may run into a problem is if the lender fails to file the deed on time, or if the deed goes missing in transit to the local government office. Even though financial obligations to the lender are fully met, the lien will remain on the property. If this happens and a potential buyer does a title search, you’ll likely run into problems trying to sell the home. This situation is known as a clouded title.
If the deed of reconveyance for your home wasn’t properly recorded, you don’t have to panic. Contact the county recorder of deeds office to confirm whether the lien has been removed from the title. If it hasn’t, reach out to your lender for help with clearing up the issue. Your lender will have plenty of incentive to get the document properly recorded since some states penalize lenders who don’t file deeds of reconveyance in a timely manner.
Pro Tip
In some states, title companies can file the deed of reconveyance if the mortgage lender fails to do so. Contact your title company to determine if that’s the case where you live.
FAQs
What is the meaning of reconveyance of mortgage?
Reconveyance refers to the process of clearing the lender’s lien from the home’s title, and having the property fully transferred to the borrower.
How do I get a full reconveyance?
You’ll get a deed of reconveyance once you’ve fully paid off your mortgage. You don’t have to worry about filing anything yourself—your mortgage lender should record the reconveyance. The term full reconveyance usually describes a notarized deed of reconveyance that’s been signed by a trustee.
What is the purpose of a reconveyance?
Reconveyance is an important process because it means the lender’s lien has been removed from your title, and you have full ownership of the home. Until this deed has been recorded, the lien will remain on your title.
Are reconveyance deeds really deeds?
The term “deed” refers to any legal document that transfers ownership of an asset. Because a deed of reconveyance transfers the ownership of a property from the lender to the borrower, it is a type of deed.
Key Takeaways
- A deed of reconveyance is a document you receive once you completely pay off your mortgage.
- Once your lender gets your final mortgage payment, they will issue a reconveyance deed to transfer the title of your home to you.
- You may receive a deed of reconveyance immediately if you pay for the property all at once. However, lenders may still put a lien on the property for future loans or debts.
- Make sure your reconveyance deed is recorded at your local government office.
- If the reconveyance deed is lost or missing, speak with the recorder of deeds office and your lender to get the issue cleared up.
EG
Erin Gobler is a Wisconsin-based personal finance writer with experience writing about mortgages, investing, taxes, personal loans, and insurance. Her work has been published in major outlets, such as SuperMoney, Fox Business, and Time.com.
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