What Is a Deed of Reconveyance and Why Is It Important?
February 19th, 2023
Is the end of your mortgage payment getting near? You’re probably patiently waiting for that time to be over because, once it is over, you are a legal owner of your property, and there is no more foreclosure risk. A deed of reconveyance plays a very important role in that process.
That document is essentially a title transfer and proof of your legal property ownership. You will get it after you have paid off the debt to the lender. Additionally, the lender will issue a deed of reconveyance if you refinance the mortgage or if you decide to sell the property and cover the mortgage with the proceeds of the sale.
Mainly, the deed of reconveyance is a document that needs to be notarized and recorded in the county where the property is located. As with all legal matters in the real estate world, there is so much more to it, so let’s dive in.
What Is Reconveyance?
The world conveyance means to transfer or transport. A deed of reconveyance transfers ownership of a home back to the borrower. The lender records the deed of reconveyance to release the mortgage. After paying off the loan, the borrower receives a full reconveyance, releasing him or her from the obligation to repay the debt.
In many states, a substitute trustee must sign the deed of reconveyances before it is recorded. A substitute trustee is usually a bank or escrow company. A deed of reconveyance is an official document that removes a lien against real property.
There are different ways to execute the deed of reconveyance depending on the state where a property is located. For example, some states require a notary public to witness the transaction. Other states allow a person to act as a substitute trustee without being a licensed attorney.
Liens Against the Property
A lien is an encumbrance placed upon land that gives another person a claim to the title of the property until certain debts or taxes are paid. This is similar to a security interest.
When you sell your home, it is important to make sure that the seller transfers all liens to the buyer; otherwise, the buyer could lose his or her home. You can do this either by having the seller sign a waiver or by making sure there are no liens on the house.
If you owe money on your home, you might want to consider paying it off before closing escrow on your next home. If you fail to pay off your debt, lenders can take legal action to collect the money owed. In addition, lenders can file a lien against your property.
Deed of Reconveyance Must be Recorded
In order to have a valid deed of reconveyance, you must have a notary present and you must record it in your local recording office. If your deed is not recorded, it will cause trouble once you or your inheritors try to sell it.
The process of creating a deed can vary depending on where you live. In some states, deeds are recorded with local governments, while in others, deeds must be filed with county recorders. Some states require buyers to obtain a warranty deed, while others do not.
In California, you need to go to Registrar-Recorder in the country where your property is located. As California uses deeds of trusts primarily, deeds of reconveyance remove the power of deeds of trust.
If the deed isn’t recorded properly, any future title search will show liens on the property.
Selling, Refinancing and Taking a Second Morgage
A deed of reconveyance is a legal document used to transfer real estate ownership from the lender to the owner/borrower. This process is often necessary when the owner wants to sell his home. In that case, the proceedings from the sale have to cover the remaining debt to the lender.
In case of refinancing a mortgage for a property, your primary lender will send you a deed of reconveyance to showcase that you’ve paid out the loan. However, refinancing means that you still have a lien on a property, so reconveyance only protects you from getting foreclosed on the first loan.
Getting a second mortgage on the property also can result in you getting a deed of reconveyance However, it doesn’t protect you from foreclosure, as the second mortgage serves as collateral on the first loan.
What Is Written in the Deed of Reconveyance
The document itself includes information about the lender and the borrower, their names, contacts, and addresses. Also, deeds of reconveyance include all the details about the house - such as square footage, lot size, number of rooms, etc.
If you want to sell your home quickly, it might be worth having a lawyer draft up a deed of conveyance. This way, there won't be any surprises later on down the road. Several special items are included in deeds of conveyance. These might include things like warranties, covenants, easements, and liens.
Example of a Deed of Reconveyance
A deed of reconveyance allows a homeowner to transfer ownership of a house without paying extra fees. This document transfers the legal rights to the property from one person to another. If you want to sell your home, you’ll likely need to obtain a deed of reconveyance.
You do this by requesting it from the seller. Once both parties agree to the terms of the transaction, the seller signs the deed and sends it to the bank. Your lender will review the documents and approve the loan. Afterward, you sign the deed and send it back to the seller.
The process takes about 30 days, depending on how fast the seller completes the paperwork. During that time, the seller cannot legally record the deed. For example, if you plan to use the proceeds to buy a different home, you won’t be able to close on the purchase until the seller records the deed.
The Purpose of the Deed of Reconveyance
Simply put, you need a deed of reconveyance to sell a property. If you don’t intend to sell it, maybe those who inherit it would want to. Additionally, if the reconveyance isn’t properly reported, you might be at risk of a foreclosure on the property you’ve already paid off.
Your lender has the obligation to send you the deed of reconveyance at least 75 days after you’ve paid your last monthly payment. And, don’t forget, this deed does not spare you from paying your property taxes. During the life of your mortgage, you were probably paying a certain amount of money for an escrow.v
The escrow holder made sure you were paying your taxes and insurance properly. However, once you don’t have the obligation towards the lender to put money into escrow, you might forget about the homeowner's expenses. In that case, you can still get foreclosed on, this time by the government.
Escrow Accounts for Homeowners
Many people find it a nuisance when you suddenly have to think about the taxes and insurance premiums and their dues and amounts. You have to save up months in advance and be ready to pay in full.
If you want to make it easier for yourself and continue paying your annual expenses through an escrow account, contact Lightspeed Escrow. We are a team of experienced professionals who work tirelessly toward removing the inconveniences in the real estate world.
