If you're in the process of buying a property with a mortgage, you should know about a deed of reconveyance, which transfers title to the borrower once a mortgage is paid off. Having this document in hand could mean the difference between having clear title to a property or not.
How a deed of reconveyance works
When you take out a mortgage, a deed of trust places the property's title in trust, with the mortgage holder as the beneficiary, until the debt is satisfied. The trustor is the term used for the debtor purchasing the property, while the trustee is the title holder, often a bank or escrow company.
When a mortgage is paid off, the lender should record a full reconveyance of the deed of trust with the local recorder of deeds or land registry office, stating that the debt has been satisfied and that the property no longer has a lien on it. A document known as a substitution of trustee and full reconveyance identifies the person who has the authority to reconvey the property and remove the lien.
Most importantly, a deed of full reconveyance, known as a satisfaction of mortgage in some states, transfers title back to the borrower. Once the document is registered, it establishes the borrower as the sole owner of the property, which is now free and clear of the previous mortgage.
Note that deeds of release and reconveyance can work together, as the former removes the previous claim (the mortgage) from the property, while the latter actually transfers the title of the property to the borrower.
The procedure for executing a deed of reconveyance varies by jurisdiction, but usually, the document must at least be notarized. Some states, such as Georgia and Vermont, also require witnesses for the signing of deeds.
When no deed of reconveyance has been filed
If no deed of reconveyance is recorded with the local recorder of deeds or land registry office, that means that the property still carries a lien. If you find yourself purchasing a property for which no deed of reconveyance was filed, you should still attempt to prepare one either yourself or with the help of the lender, otherwise there may be a problem proving that you are acquiring the property free of the mortgage.
A lender that fails to timely file a deed of reconveyance may face statutory penalties, which in many instances also relieves the property owner who has paid off the mortgage from having to incur further costs to clear up the chain of title. Some states, such as California, allow a title company to prepare and register a deed of reconveyance within 72 days of the debt's repayment if the lender fails to do so.
Note that in any and all transactions concerning the property, you should read and compare all information in the documents, including the property description, to ensure the information is correct and matches from document to document.
Transferring a mortgaged property can be rather complicated, but it doesn't have to be. Getting help from an experienced professional or online service provider can give you the peace of mind that you're not missing any steps that could cause problems for you and your property in the future.
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