Reconveyance Deed : A deed of reconveyance is a document that transfers ownership of a property from a mortgage lender to the borrower, showing that the borrower has completed their repayment obligations and now owns the property.
What Is a Reconveyance Deed?
Important Points to Remember:
• When a mortgage is paid in full, a deed of reconveyance is frequently issued.
• The lending institution cannot foreclose on a homeowner who has acquired a deed of reconveyance.
• Lenders of second mortgages or home equity loans who have a security interest in the property after the initial mortgage has been paid off can still foreclose on the property for their loans.
How a Reconveyance Deed Works
Once borrowers, or mortgagors, have paid off their mortgages in full, a deed of reconveyance is typically issued.
It contains a legal description of the property, as well as the lot number and other pertinent information, and it is frequently notarized.
A satisfaction of mortgage document is used in some states instead of a deed of reconveyance, although the process is essentially the same.
In the county where the property is located, the deed of reconveyance is recorded.
Any search on that property after the deed has been recorded would reveal that the lien has been paid in full.
A property with a lien on it cannot be sold unless the lien is a mortgage and plans have been made to pay it off entirely using the proceeds of the sale.
In such cases, recording the deed of reconveyance is often conducted by a title insurance company as part of the closing procedure of the sale.
When homeowners refinance their properties with a new mortgage, they should also acquire a deed of reconveyance indicating that the previous loan has been paid off.
Security Interest vs. Reconveyance Deed
While the mortgage is still outstanding, the lender has a security interest in the property.
If the borrower defaults on the mortgage, it can foreclose on their home, evict them, and seize possession of the property.
The lender can then try to reclaim its money by selling the property.
The deed of reconveyance establishes that the lender no longer owns the home as a security interest.
The lender cannot foreclose on a homeowner who has received a deed of reconveyance, and they can transfer the property at any time, free and clear of the mortgage.
An example of a Reconveyance Deed
A deed of reconveyance is a straightforward document that varies from state to state and lender to lender.
In states where trust deeds are used instead of mortgages, the transaction will involve a third party known as a trustee.
(Technically, the trustee “holds” the mortgage on behalf of the lender, who is known as the “beneficiary.”)
The following items are usually included in a reconveyance deed:
• The homeowner’s or mortgage borrower’s name and address.
• The lender’s/name. trustee’s
• Based on the original deed or other legal document, a description of the property.
• Language indicating that the borrower has met their financial obligations to the lender and that the property secured by the mortgage or trust deed has now passed to the borrower.
• There are lines for all parties’ signatures, as well as a spot for a notary to confirm that they witnessed the signing.
Particular Points to Consider
If a homeowner fails to make timely property tax payments, they may face foreclosure by the local government even after receiving a deed of reconveyance.
In places that allow a nonjudicial foreclosure process, this process can be started by written notification and without involving the court, therefore owners in this case may not get much notice.
Property taxes have no bearing on or interaction with a deed of reconveyance.
When a home serves as collateral for a second mortgage or a home equity loan, the lending institution often receives a security interest in the property.
If the borrower defaults, these lenders can use their right to foreclose.
These loans would be unaffected by a deed of reconveyance linked to the original mortgage.
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