Deed of reconveyance: What is it, how much it costs and how it works?

Deed of reconveyance is a document that refers to the names of the parties involved in the transfer of the estate. It shows that the title of a property from the trustee is transferred to the trustor once the mortgage is paid. The trustee here is a borrower of a mortgage, a loan that is borrowed to purchase the property and the trustee can be a bank or can be a private mortgage lender.

It is important to know what the deed of reconveyance does for those who seek a mortgage to purchase a property. Once the deed of reconveyance is formulated, it proposes that the mortgage is fully returned to the bank or the mortgage holder and the property is now solely owned by the trustee.

To fully understand the deed of reconveyance and related scenarios, stick to the following guide that contains:

  • Understanding Deed of reconveyance
  • Deed of reconveyance with no record
  • Example of reconveyance of deed of trust
  • What should you expect to pay as a reconveyance fee?
  • What does the reconveyance fee cover?
  • When the reconveyance fee is collected?
  • What is a partial reconveyance?
  • Procedures to obtain a partial release
  • Finishing the partial release

Understanding Deed of reconveyance

Whenever you want to finance your property through a loan, a trust deed to ensure the lender that the mortgage will be returned in a specific period with significant interest. Through a trust deed, a title of the property is put in trust along with the beneficiary as a trustee. 

Once the borrower pays the debt, the deed of reconveyance is made to clear the trust deed and transfers the title of the property to the trustee.

The deed of reconveyance can be taken into account after the signature of the trust in front of the notary. It must be notarized by the public attorney to make sure the information in the deed of reconveyance is valid and accurate. After the notarization, the deed has to be submitted to the provisional record or municipal office to recognize the transfer, so the title of the property can come into effect under the trustor or beneficiary’s name. The process of recognizing the deed of reconveyance can differ depending on the state you reside or when the jurisdiction changes.

The trust deed consents the trustee (banks most of the time) to penalize the borrower if the loan is not paid under the agreed terms. If this happens, the trustee can claim for foreclosure of your property and it can also lead to seizure of your title from the property. When the bank seizes the property, the property will be used as collateral against the mortgage. The bank has the authority to sell the property and recover the remaining mortgage loan.

On the contrary, a deed of reconveyance ensures the trustor that the bank cannot intervene and does not own the property when the deed comes into effect. It means that the trustor is now the homeowner and can transfer the title to anyone and anytime.

Deed of reconveyance with no record

As mentioned earlier, the deed of reconveyance has to be recorded in the municipal or provincial record office so the title and deed come into effect when it is notarized. When a deed of reconveyance has no record in the record office, the title of the property remains under question. The trust deed comes under burden whenever the homeowner tries to sell the property on his own to pay the mortgage. Further complications may also arise when there are mistakes in the deeds either trust or reconveyance, you need to be mindful when submitting your deeds to the record office the recorder’s office does not keep a record of the liens and the encumbrances that are released from a property. Therefore, when the title company researches for the title against a real estate, it does not find any liens if the deed of reconveyance form is not submitted to validate.

A lien typically states a legal claim that the property entails a security interest that has to be provided by the owner of the property to the creditor.

The title company ensures that a title of the property does not contain third-party involvement and can be transferred exclusively from the seller to the purchaser. Eventually, a seller homeowner must ensure the buyer that the property does not hold any liens from prior owners or any trustee when selling the property.

Example of reconveyance of deed of trust

To some up understanding for reconveyance of deed of trust, let’s have an example:

Suppose Merida decides to finance a property, a house. For this, she applies for a mortgage loan of $400,000 from the bank as a trustee. The new property will be considered collateral property under the trust deed. Once Merida manages to pay the mortgage loan, the trustee will be obligated to make a deed of reconveyance.

Merida needs to make sure that the trustee has submitted the deed of reconveyance form to the record office with proper and complete information when she paid off all the mortgage loans. The deed of reconveyance will indicate that the title of the property has been transferred to Merida and she is the sole owner of the house.

What should you expect to pay as a reconveyance fee?

When the deed of reconveyance is granted, it clears the ambiguities regarding the mortgage or liens against a land. This document also ensures that the title of the property is legally clear and tells you if any current mortgage liabilities are there on the land.

To validate the property information, the record office requires a reconveyance fee that typically falls between $50 and $65 which may vary across states. You may have to pay your lawyer or trustee if they are submitting a deed of reconveyance on your behalf. You can check the local municipality office to figure out the charges of reconveyance if you think the lawyer or your lender is overcharging.

What does the reconveyance fee cover? 

The reconveyance fee covers administrative outlays of filing the deed and the lawyer’s fees required to transfer the title from one owner to another. The company that does all the work and charges the fee can be a registrar’s office, the county clerk, or the record’s office. In cases when you require the previous owner’s records for your land, you can ask the company for those records. This is why the reconveyance fee is important so your property records remain secure and updated.

When the reconveyance fee is collected?

Although the reconveyance fee is collected when the mortgage loan is paid, borrowers are expected to pay the reconveyance fee before the reconveyance deed process even begins. Lawyers and lenders require a borrower to place the reconveyance fee ahead of time at escrow so it can be released when the time comes or must be brought on the time of closing. Through escrow or cash, it totally depends on the nature of your mortgage and the lawyer or lender’s preference who is assisting you to execute and file for a reconveyance deed.

What is a partial reconveyance?

If your property is in the process of paying mortgage loans to lenders, then you must know about partial reconveyance. Certain lenders and trustees permit a borrower for a partial release once specific equity is generated against a land.

When the partial release of the land is granted, a specific area of the land in question can be released from the collateral debt. A borrower can use the scenario when he wants to lend or sell a portion of the property that is held by the mortgage. Additionally, a partial reconveyance helps the borrower to pave away the transactions smoothly.

You need to adhere to the following steps in the event of utilizing the partial release option.

Procedures to obtain a partial release

The first step in obtaining a partial release of your property, you need to see what stipulations and regulations your borrowing plan is composed of. Your borrowing plan will help you determine whether you are entitled to use the process of partial release or not. In many conditions, while making the trust deeds, lenders explicitly mention that the partial reconveyance release is prohibited. If there’s no statement of release, then you must consider it prohibited. In both cases, you must contact your lender to schedule a release.

A release schedule will elucidate the amount of mortgage that must be paid to release a certain percentage of your property. In case if you want to sell a particular area of your land, then the schedule will dictate when the sale is permitted. Without the approval and the agreement of your lender, the sale of a certain portion cannot occur.

Finishing the partial release

Once your lender schedules a release, you need to fill an application for partial release of your property that needs to be filled mindfully before taking any further steps. If your lender agrees to the information provided on the application, you need to apply with all the required documents to the local recorder’s office or the county clerk.

If the lender does not respond to the application in the provided time frame outlined in your application, you must contact your lender to know whether you are eligible to get the release.

Once the application is approved, the requested portion of your land will be released from the mortgage umbrella.

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