Reconveyance

What is reconveyance?

Reconveyance is the transfer of a title to the borrower after a mortgage has been fully paid.

Deeper definition

When a home is purchased, the borrower receives a deed of trust that represents his debt. The lender still owns the home, and, as the borrower pays it off, the balance of ownership tips away from the lender to the borrower.

Once the balance has shifted entirely to the borrower, that is the mortgage is fully paid off, the lender bequeaths the borrower with a deed of reconveyance.

The county where the property is located records the deed of reconveyance. Then, the property enters the public archive as paid in full with no liens against it.

When a lender fails to provide the borrower with a deed of reconveyance, it can raise the question of who is the property’s rightful owner. Unless a deed of reconveyance is issued, the deed of trust appears to remain open, even if the borrower has paid off the mortgage.

Should the house go up for sale, an unresolved deed of reconveyance issue could cause problems for all parties involved.

It is the lender’s responsibility to provide the borrower with the deed of reconveyance, though often a clerical error or some other oversight is to blame for a failure to issue the deed.

Some states are starting to implement tougher laws to ensure that lenders do not accidentally forget to give borrowers their rightful deeds, thanks to the myriad of legal and titling issues that have occurred because of forgotten deeds of reconveyance.

Finally, a deed of reconveyance does not protect property owners from the risk of foreclosure if they fail to pay property taxes or default on a home equity line of credit. Homeowners must pay the required fees and taxes to stay in their homes, even after a mortgage is paid off.

Reconveyance example

If you purchase a home, a deed of trust is transferred to a trustee, which holds it as security for a loan between a borrower and lender. When you finish paying off your mortgage, you should receive a deed of reconveyance from your lender.

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