Understanding Reconveyance When You Pay Off Your Mortgage

For most of us, our home mortgage is the largest debt we incur, so paying it off can be quite a relief.

If you’re close to the finish line, you have clearly made the right financial moves to get there. Making the last of your mortgage payments is a great milestone for a homeowner. And to complete the home buying process, you receive a deed of reconveyance.

What Is A Deed Of Reconveyance?

A deed of reconveyance is the official document issued to you by your lender that relinquishes you from your mortgage loan debt. The deed is typically recorded after a homeowner has paid their mortgage in full and fulfilled their obligations to the deed of trust. The deed of reconveyance officially transfers the property’s title from the lender to the borrower and ensures there is no mortgage lien on the property.

For some homeowners, this is the exact moment when they feel like they truly own their home. Up until that point, they may have felt like they were “renting” their home from the bank.

What Is A Reconveyance?

Reconveyance officially transfers a property’s title from the mortgage lender to the buyer or borrower.

When you purchase a home with a mortgage, your lender has a security interest in the home while the mortgage is outstanding, ensuring that a borrower makes good on their promise to repay the home loan.

If the borrower defaults on the mortgage, the lender can take any or all of these actions:

• Foreclosure
• Eviction
• Seizing the real estate
• Selling the property to recoup the balance of the loan

Once your entire mortgage debt is paid off and the lender gives you the deed of reconveyance, they no longer have a security interest in your home.

How A Deed Of Reconveyance Works

When you first took out a mortgage to buy your home, you signed a promissory note, sometimes referred to as the mortgage note, which detailed the terms of your loan. As part of the home buying process, you signed a mortgage or deed of trust that made your home collateral for the loan. This meant that if you didn’t pay your mortgage, the home could be taken and sold to fulfill the debt.

The lender put a lien on your house title that was recorded by your local municipality. The lien is the official legal mechanism the lender can use to take your home through foreclosure if you stop making mortgage payments.

When your lender contacts the title company to issue a deed of reconveyance, your rights as a homeowner change to that of a titleholder – previously, the lender was the titleholder – and this change of status is noted by your county recorder. Your lender can no longer foreclose on your home (though a government agency still could if you didn’t pay your property taxes). A deed of reconveyance also helps avoid encumbrances (anything that impedes what a land or homeowner can do with their property) if you try to sell the home.

The legal documents used for reconveyance may differ depending on how your loan is secured (mortgage or deed of trust). Here are some common forms you may see related to reconveyance:

• Deed of reconveyance
• Satisfaction of mortgage
• Mortgage satisfaction
• Release of mortgage
• Mortgage release
• Release of trust deed

No matter what the document is titled, they all serve the same purpose: To confirm that you paid off your mortgage loan and remove the lender’s lien from the property’s title. After the deed of reconveyance is issued and the title is in your name, you may likely feel a real sense of accomplishment and feel like you truly own your home.

Conveyance Vs. Reconveyance

You may have heard the term “conveyance” in connection with real estate transactions, and you may be wondering how it differs from reconveyance.

Conveyance refers to the legal transfer of property from one party to another. The transfer is facilitated by a conveyancer whose job is to help expedite the transfer of the property. Typically, the conveyancer is the closing agent at the title company or a real estate attorney.

Reconveyance is the legal transfer of a property back to its original owner. When you purchase a property with a mortgage, you become the original owner. Your lender conveys ownership back to you once your mortgage debt is paid off.

Deed of Trust Vs. Deed of Reconveyance

A deed of trust is an alternative to a mortgage. It involves the buyer of the property, the lender and a neutral third party. In this arrangement, the buyer (borrower) is the trustor, the lender is the beneficiary and the neutral third party is the trustee.

The trustee is usually a title company, bank, escrow company or real estate attorney with the power to sell the home (foreclose) if the trustor can’t make their monthly mortgage payments.

A deed of reconveyance proves the loan made through a deed of trust has been paid in full, and the trustee can no longer sell the home.

What’s Included In A Deed Of Reconveyance?

While the exact forms and procedures vary, a deed of reconveyance often includes:

• The name and address of the homeowner or borrower
• The name of lender or trustee
• A description of the property
• Language stating the borrower has fully repaid the lender and the property now belongs to the borrower
• Signature lines for all associated parties and the notary witnessing the signing

Example Of A Deed Of Reconveyance

Let’s say a home buyer takes out a $200,000 mortgage to purchase a home. The property will serve as collateral under the deed of trust. Once the loan is paid in full, the lender will certify the homeowner’s financial obligation has been met and prepare a deed of reconveyance. The deed of reconveyance will indicate the mortgage loan has been satisfied, and the property’s title will be transferred to the homeowner, giving them full ownership of the property.

The deed of reconveyance form varies from state to state and lender to lender. Some states use deeds of trust rather than mortgages, as well as third parties as trustees.

Investigate how the process works in your area and what forms you can expect to see. Your real estate agent, real estate attorney, lender or title company are all good sources of information. The more you know going into this process, the fewer surprises you will encounter.

Do You Need To Record A Deed Of Reconveyance?

A deed of reconveyance must be legally recorded to ensure correct ownership of the property. If the deed of reconveyance isn’t recorded with your local recorder of deeds or land registry office, the property lien will remain on public records.

If you are purchasing a home and learn no deed of reconveyance was filed, it may be difficult to prove the property was cleared of its mortgage debt.

Lenders can be penalized if the deed of reconveyance isn’t managed according to state guidelines. In California, for example, if the lender doesn’t prepare and register a deed of reconveyance within 75 days from the homeowner’s final mortgage payment, the homeowner can sue the lender for any difficulty their failure to execute caused the homeowner.

FAQs On Reconveyance

Now that you know the basics, let’s get answers to some of the most common questions about reconveyance.

Who signs the deed of reconveyance?

The deed of reconveyance must be signed by the trustee holding the deed of trust and notarized by a public official.

What if the deed of conveyance is not filed or is improperly filed?

If a deed of reconveyance isn't filed with the recorder’s office or has errors, it can create a title issue. The deed of trust will remain on the property, so the property will continue to carry a lien.

This can cause complications if the homeowner tries to sell the home. When the title company conducts a title search, the recorder’s office won’t have a record of the lien being released. A homeowner needs to ensure there are no liens against the property from any lender when trying to sell their home.

Can a homeowner face foreclosure with a deed of conveyance?

Under certain circumstances, government agencies can foreclose on a property even after the homeowner receives a deed of reconveyance. The most common reason an agency might foreclose on a property is the failure to pay property taxes. In addition, states that recognize nonjudicial foreclosure allow local government entities to begin the foreclosure process without involving the court. Unfortunately, this means homeowners may not receive much warning.

Another way a homeowner might face foreclosure with a deed of reconveyance has to do with second mortgages or home equity loans. The loans give lenders a security interest in the home because the home serves as collateral. The loans aren’t affected by a deed of reconveyance because the loans are separate from the purchase mortgage.

The Bottom Line: The Home Is Officially Yours

Having a deed of reconveyance is a great feeling. It represents the long process of purchasing your home with a mortgage and then paying it off over months and years. You paid attention to the terms of your loan, paid your bills on time and are reaping the rewards by owning your home “free and clear.”

Keep in mind, though, that you aren't immune to foreclosure just because you paid off your mortgage and received a deed of reconveyance. You may lose your home if you don't pay your taxes or default on a second mortgage or home equity line of credit (HELOC).

Before you begin your home buying journey, learn all you can about the mortgage process by connecting with an agent today.