After the borrower has paid off their mortgage in full, the mortgage lender will hand over the property's title to the borrower using a document known as a deed of reconveyance.

The Process Behind a Deed of Reconveyance

When a mortgage debt has been paid off in its whole, the borrower will get a document called a deed of reconveyance. The lending institution drafts the document; it is notarized, contains an official description of the property, and is registered at the county recorder's office in the county where the property is situated. Any search of the property's title that is carried out will reveal that the lien has been paid off in its entirety. The borrower is no longer in danger of losing their home to foreclosure now that the debt has been paid off.

It is impossible to sell a piece of property that has a lien placed on it. However, if the profits from the sale of the home will be used to pay off an existing mortgage, then the recording of the deed of reconveyance must be done as part of the closing process of the sale. Recording the deed of reconveyance is often conducted by a title insurance firm.

Because the home is often used as collateral for loans secured by a second mortgage or a home equity line of credit, the lending institution is granted a security interest in the homeowner's property. If a borrower fails to make payments on these second loans, the lender may use their right to foreclose on the property. The deed of reconveyance associated with the first mortgage does not impact the second loan and does not provide the homeowner with any protection.

The terms of a deed of reconveyance might vary from state to state and from lender to lender. A third entity, known as a trustee, will retain the mortgage on behalf of the lender in states that employ trust deeds rather than mortgages. These states are known as trust deed states. In certain places, the satisfaction of mortgage paperwork is used instead of a deed of reconveyance; however, these legal instruments serve the same objective.

What's Included in a Deed of Reconveyance?

• The name and address of the person who owns the home and is borrowing money for the mortgage.
• The name of the financial institution or trustee.
• The original deed includes a description of the land and a parcel number.
• Evidence indicates the borrower has satisfied their commitment to the lender and that the property previously secured by the mortgage or trust deed is now legally the borrower's property. This might be in the form of a document.
• There are spaces for each party's signature and an area for the notary to confirm that they were there throughout the signing process.

Example of Deed of Reconveyance

By the terms of the deed of trust, the property in question will function as collateral if a person buys a home and obtains a mortgage from a financial institution or mortgage lender for $400,000.

Once the loan is paid in full, the lender will confirm that the debt has been paid in full and prepare the deed of reconveyance, which often occurs within a few weeks of the loan being paid off in full.

The deed of reconveyance will state that the mortgage debt has been paid off in its whole and will demonstrate that the borrower now has both the property's title and complete ownership of the home.

Security Interest and Deed of Reconveyance

The lender holds a security interest in the property throughout the mortgage's term and may foreclose, evict the borrower, and acquire ownership if the borrower defaults on the loan. The deed of reconveyance proves that the lender no longer has any ownership or security interest in the property. This implies that the lending institution cannot take any legal action to foreclose on the homeowner and that the homeowner is free to sell or otherwise transfer ownership of the property at any time.

Conveyance and Reconveyance

A conveyance must be drawn out and signed to change who legally owns certain real estate. A deed is a legal document that specifies the parties and the property being transferred. The title to the property cannot be transferred to the borrower unless the lender, who currently has a title, executes a deed of reconveyance.