Deed of Reconveyance
A document that transfers the title of a property to the borrower from the bank or mortgage holder once a mortgage is paid off
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What is a Deed of Reconveyance?
A deed of reconveyance refers to a document that transfers the title of a property to the trustor from the trustee once a mortgage is paid off. The trustor is the borrower of debt for the purchase of the property. The trustee may be a bank or mortgage holder.
A deed of reconveyance is important to understand for those looking to take out a mortgage to purchase a property. The document indicates that the borrower is now the sole owner of the property, and it confirms that the mortgage loan has been paid in full.
Summary
- A deed of reconveyance refers to a document that transfers the title of a property to the borrower from the bank or mortgage holder once a mortgage is paid off.
- It is used to clear the deed of trust from the title to the property. The deed of reconveyance is completed and signed by the trustee, whose signature must be notarized.
- With no record of a deed of reconveyance in the record’s office, the homeowner may come across difficulties and complications when trying to sell the home.
Understanding a Deed of Reconveyance
When an individual decides to finance their purchase of a property with a mortgage, a deed of trust is used. A deed of trust is an agreement that puts the title of the property in trust, with the trustee as the beneficiary. Only until the debt is paid off by the borrower can a deed of reconveyance then be used to clear the deed of trust from the title to the property.
The document is signed by the trustee, whose signature must be notarized. It means that the signature must be legalized by a notary public to ensure the accuracy of the document. Then, to complete and recognize the transfer, it is required to submit and file the document to the municipal or provincial records office. The exact process for processing a deed of reconveyance may vary across different provinces and jurisdictions.
The deed of trust permits the bank to penalize the borrower. If the mortgage loan is not paid for, it can lead to the seizure of the property and foreclosure. In seizing the property, the bank will use the property as collateral and sell it to attempt to recover the remaining mortgage balance.
On the other hand, with the deed of reconveyance, the bank no longer has legal ownership of the property. It means the homeowner can now transfer the property at any time.
No Record of a Deed of Reconveyance
When no deed of reconveyance is recorded with the record’s office, it creates a title issue to the property. The deed of trust will remain a burden against the property, and the homeowner may come across difficulties when trying to sell the home. There may also be further complications with minor mistakes in the document, and it is important to look out for errors.
Essentially, when the title company conducts its title search, the recorder’s office will have no record of a lien release on the property. A lien refers to a legal right to claim a security interest in a property provided by the property’s owner to the creditor.
The title company helps verify that the title of the property can be transferred from solely the seller to the buyer, with no other parties involved. Ultimately, a homeowner must ensure that there are no liens against the property from any lender when trying to sell.
Example of a Deed of Reconveyance
As an example, say Sally decides to purchase a house, and in doing so, she needs to take out a mortgage of $300,000 from the bank. The new property acts as collateral under the deed of trust. Once Sally has fully paid off her mortgage, the trustee must then complete a “Request for Reconveyance.”
Sally must ensure that the lender has filed a deed of reconveyance when all debt repayments have been made. It will indicate that the mortgage loan is paid in full, and the reconveyance shows that she has all the title and ownership of the property.
Related Readings
CFI offers the Commercial Banking & Credit Analyst (CBCA)® certification program for those looking to take their careers to the next level. To keep learning and developing your knowledge base, please explore the additional relevant resources below:
