Definition of Reconveyance of a Mortgage
A mortgage is a secured loan, which means it is backed by an asset -- in this case, the house itself. This lowers risk and gives the lender the confidence to make the loan. But secured loans are not always represented by the buyer's word alone. In addition to the mortgage contract, lenders may be able to require extra security, such as the title to the property itself. This exchange and return of title is at the heart of a reconveyance.
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Definition
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A reconveyance is a legal process in which the lender gives back the title of the property to the borrower. This occurs when the borrower fully pays off the mortgage. With the mortgage debt gone, the lender has no more claim on the property and must close the account. As part of the closing, the lender relinquishes any claim on the house and transfers the title, which it has been claiming throughout the mortgage, back to the borrower. The borrower becomes the true owner of the property and the lender is able to record a successful mortgage.
Buyer Action
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In the original conveyance, the buyer of the property uses a deed of trust to move the title from their possession, they received it on closing, to the possession of the trustee. The lender does not possess the title directly. Rather, the buyer gives the title to a third party, typically an escrow or title company involved in the sale. This trustee holds the title until the mortgage comes to a end, then reconveys the title back to the buyer. This makes it easier to transfer the title quickly, especially if there is confusion between the buyer and lender.
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Lender Action
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When the lender sees that the mortgage has been fully paid off, the lender will give the promissory note it has been holding to the trustee. This note presents its claim to the title and the creation of the deed of trust. The trustee will cancel the note, legally removing the lender's right to the property, and then release the title back to the buyer.
Benefits
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Not all states require that the title be held with a deed of trust until the mortgage is complete. In those that do, the lender has extra security when making the loan. With a transfer of title overseen by a trustee, the process becomes more formalized and easy to predict. Borrowers also enjoy this arrangement, since it makes it easier for them to ensure the lender has no claim on the property after the mortgage has been paid and the title reconveyed.
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