A Brief Introduction About Reconveyance
Loans from a lender are often taken against a property by mortgaging such property. This creates a debt that is shown in the deed of trust between the borrower or the buyer of a property and the lender. The deed of trust turns the borrower into a beneficiary, and the property’s title transfers to the trust. When such debt is paid off in full, the borrower becomes the owner of the property, and the mortgage that was taken by the borrower ceases to exist. A deed of reconveyance facilitates the transfer of title and succeeds in the deed of trust.
What Is Reconveyance?
Looking at the reconveyance definition will help us understand the term. It is the act of transferring the title of the mortgaged property back to the borrower by the lender. It releases the borrower from the mortgage.
It can be of two types partial reconveyance and full reconveyance. When the lender releases only a part of the property to the borrower, transferring the title, it is known as partial reconveyance. When the lender releases the full property after full payment of the mortgage, it is known as full reconveyance.
What Is a Deed of Reconveyance?
It is a document that governs the transfer of title from the lender to the borrower for a property that was mortgaged and was a part of the deed of trust. This document is the responsibility of the lender. Without such a deed, the sale of the property can hit a roadblock. The deed, which is sometimes replaced by a ‘satisfaction of mortgage,’ creates a right and releases the debtor from the mortgage.
A substitution of trustee and full reconveyance happens when the present trustee for the lien on the property is to be replaced, and the title is to be transferred to the new trustee, the borrower remaining the same.
Who Takes a Reconveyance? – People Involved
The agreement is taken by a borrower who has mortgaged the property and then paid off the full mortgage and a lender who lends the money to the borrower, like a bank, any other financial institution, or company. An insurance company that insures the title in the transaction may also be responsible for providing the deed.
Purpose of Reconveyance – Why Do You Need It?
There are several purposes served by the agreement:
- It releases the borrower from the mortgage.
- It transfers the title of the property back to the borrower, making him/her the sole owner of the property.
- It signifies that there is no lien on the property and serves as evidence for the same.
- It ensures that the property is regulation-compliant for sale.
The agreement is a must to establish the clear title of the property. Without it, there can be potential legal disputes in the future, giving rise to expensive and time-consuming litigation.
Contents of Reconveyance – Inclusions
These are the key points that are a part of the agreement between the borrower and the lender:
- The name, address, and size of the property, including all other details that can help to identify it.
- The names and details of both the parties, including their contact information.
- The exact amount of lien taken as a mortgage.
- The period of such a mortgage, including the dates and frequency of payment.
- The date on which the deed of trust for the mortgage was signed.
- The date on which the mortgage was completely paid off.
- The date of recording the deed and where was it recorded.
- The signatures of both the parties.
How to Draft a Reconveyance?
Drafting a reconveyance requires precision as the document forms a part of the record of a property. The following points can help in drafting a good deed if you are doing it on your own or by referring a document online.
- Use precise language that cannot be interpreted in two ways.
- Define complex legal terms if used for a better understanding of the parties.
- Mention the law governing the contract.
- Mention where the deed has to be filed for record-keeping purposes.
- Mention what the alternative dispute resolution method will be opted for in case of breach of contract.
- Include the basic, standard legal clauses like indemnity, entire agreement, severability, etc.
- Describe the property in question in detail that can help in legal identification even if the outer appearance has been altered in the future.
- Correctly spell the names of the parties and don’t make an error in specifying the amount of the lien taken on the property. Errors in this shall require a subsequent correction deed.
- Expressly state whether the mortgage has been paid in full or part.
- Expressly state whether the borrower has been released from the mortgage entirely.
- Insert a clause that clearly states that the title is transferred back to the borrower from the lender.
- Refer to the local laws and determine whether witnesses are required if they are needed, including the space for the name and signatures of such witnesses in the document.
- Mention the amount of mortgage that was paid off and the rate of interest per annum.
At the time of entering the deed of trust, the parties to the contract can agree to include a clause that ensures that the lender provides the deed of reconveyance in 30 or 60 days after the mortgage is paid off in full. Negotiation can help in getting this vital document on time and preventing any hassles in the future. Even though the deed is generally short, mutually decided clauses can be included for better clarity after rounds of negotiation between the parties.
Benefits & Drawbacks of Reconveyance
- The deed protects the borrower from foreclosure by a financial institution.
- It serves as evidence of the mortgage being paid off.
- It serves as proof of the title of a property.
- It aids during the sale of a property.
- It releases the borrower from the mortgage and creates a clear title, closing the deed of trust.
- The deed does not protect the borrower from foreclosure if the taxes are not paid or if there is a default on the home equity line of credit (HELOC) even after the mortgage is paid off.
- The deed may require hiring a legal professional. The fees of the professional may be costly.
- The deed is prone to clerical errors. If the errors happen, a correction deed that may incur additional costs may be required.
- Refinancing can create a lot of red tapes for the deed to be executed.
What Happens in Case of Violation?
A document is a contract executed between the borrower and the lender. If there is a violation of the contract, the remedies of breach of contract are available. There can be a claim of monetary damages, rescission, reformation, specific performance, injunction, etc.
For example, if the lender brings about a foreclosure on the property after the execution of the deed, the borrower who is now the clear and sole owner of the property that was previously mortgaged, can sue for damages. If any alternative dispute resolution method(1) has been opted for in the deed, then the parties may undergo that, like arbitration, for example. A violation can also occur if the borrower commits fraud in any way.
Sometimes the lender may miss to draft the deed and give it to the borrower despite it being the lender’s responsibility. Some country’s laws have a timeline in which the deed should be executed and given to the borrower after the full payment is made. Some laws penalize the trustee or the lender who fails to provide the deed. Check the local laws, notarization, and the presence of witnesses from the same may be mandatory.
You can hire a professional real estate attorney to draft the deed for you or refer to templates and forms available on the internet for drafting it yourself. Don’t forget to record the deed in your local record-keeping office as in case the deed gets lost, there can be a lot of red tapes to prove the title of the property, and this can be detrimental, especially during the sale of the property. It should be filed with other property records.