Deeds of Release

A legal document that eliminates a claim previously made on an asset

What is a Deed of Release?

A deed of release refers to a legal document that eliminates a claim previously made on an asset. It helps with the documentation of release from a mandatory agreement. The deed may be included when a homeowner receives the title of a property from the lender upon satisfactory completion of mortgage payments. The goal of a deed of release is to release the parties from past obligations.

 

Deeds of Release

 

How a Release Deed Works

The majority of individuals buy their homes with the help of mortgages provided by a financial institution – such as central banks, internet banks, commercial banks, and credit unions. When a financial institution lends money to the borrower, it takes a legal claim against the house as collateral until the loan is completely paid off.

Once the loan is paid off and all the terms of the mortgage are satisfied, a mortgage deed of release is created. Until then, the lender holds the title of the property and after the final payment is made, the title of the property is transferred to the borrower of the mortgage. The title is secured collateral for the life of the loan, reducing the default risk of the lender.

The financial institution’s legal department creates the deed of release after the loan obligations have been satisfied. The deed of release reports that the loan has been paid in full under the contractual terms. It also declares that there has been a transfer of title for the property from the lender to the homeowner.

After the creation of a deed of release and the transfer of the title, the homeowner is under no obligation to the lender. The borrower of a loan needs to prepare a deed of release with the same agency that recorded the mortgage to be sure that all mortgage obligations are removed.

 

The Use of a Deed of Release

A deed of release is used to end an agreement or dispute and to make sure that no party can continue with the dispute or agreement. For example, when a commercial dispute is resolved with another party, both parties will need to formulate a deed of release. Once a settlement is reached, it is important to draft a deed of release to ensure that the other party cannot issue legal proceedings against the other parties.

Therefore, a deed of release provides conclusive evidence following the end of a dispute or agreement. However, a release deed can limit legal actions. Therefore, it is important to understand the rights given up by a party before signing a deed of release.

 

Types of Deeds of Release

The following are different types of deeds of release:

  • Ending a personal guarantee is a deed of release that allows an individual to end personal guarantee and personal liability.
  • An employee deed of release is part of the employment contract. It relates to the termination agreement, redundancy agreement, or is part of a settlement between an employee and employer.
  • Termination of a credit agreement or loan involves ending a mortgage or loan agreement.
  • Resolving a commercial dispute is often in relation with a deed of settlement

 

Features of a Deed of Release

A common feature of a deed of release is a mutual release, which involves both parties agreeing to release each other from the following obligation:

  • Demands
  • Debts
  • Future claims
  • Other relevant actions

 

On the other hand, a release deed may allow one party to be free from certain obligations or liabilities – such as a clause preventing that party’s future services or employment.

 

How to Sign a Deed of Release

  • A person who is not part of the deed of release must witness both parties’ signatures.
  • The deed of release is executed in line with the rules of the companies.
  • There must be enough copies for each party to sign.
  • Once the first party signs all copies of the deed of release, then the signed copies will be passed to the other party to sign. The deed may permit parties to sign by counterpart, which means parties can sign separate copies of an identical deed of release.
  • Keep copies of the deed of release in a safe place.

 

Related Readings

CFI offers the Certified Banking & Credit Analyst (CBCA)™ certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following resources will be helpful:

  • Commercial Loan Agreement
  • Engagement Letter
  • Lien
  • Mortgage Forbearance Agreement

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