Exiting a Mortgage in a “Deed of Trust State”
If your mortgage exists in the form of a deed of trust, what happens at final payoff time? You’ll receive a deed of reconveyance, signed by the lender and notarized. Alternatively called a mortgage satisfaction or a full reconveyance form (depending on your state’s legal custom), it’s your official proof of title transfer from the lender.
States that use the deed of trust use this method to confirm that your loan has been paid in full. This occurs when you are selling the home, or in a refinance situation, when you get a new loan in place of the old.
A Reconveyance: The Nuts and Bolts
Once you’ve repaid your loan in full — either because you’re done with the debt or you’re refinancing with another loan — your lender will have the deed of reconveyance created by the title company. Lenders typically have the deed of reconveyance done within 30 or 60 days after payoff, following the state’s allowed window of time. Lenders must meet the deadline or pay penalties and costs.
In some states, the lender sends the document to the homeowner, who then has the deed of reconveyance notarized and filed with the recorder of deeds in the county where the property is located. In this case the owner receives a copy of the original trust deed, the deed of reconveyance, and a new title.
If you have received the deed of reconveyance to file, check it for any mistakes. An accurate deed of reconveyance is a key component of proof of payoff and ownership. Everything must be done according to the rules, so there’s no trouble later on when you transfer the title to a new owner. If the deed of reconveyance isn’t properly recorded, the house title isn’t clear.
☛ Found a typo in a deed? Is there a misspelling of a name or a mistake in the property’s legal description? Don’t panic. The fix could be a simple correction deed.
As a firm rule, whenever a new deed is made, the homeowner should check every line for accuracy. Be sure that the new deed precisely matches the earlier one.
Reason for the Reconveyance Deed: Refinancing or Selling
Interest rates are still at historic lows. Many owners are thinking now is the right time to refinance for the first or second time. If you are one of these owners, you’ll need to make a final payoff on your current loan. This is when the substitution of trustee is documented and reconveyance is given to a new lender.
Before you can refinance, the title company will ask you to order a payoff statement from the earlier lender. If you are selling the house before the whole debt is paid, then, in effect, the buyer is paying off the remaining debt. Both situations require a reconveyance.
If you have your documents ready, you’re already on your way to a smooth refinancing or selling experience.
Here are the key documents of homeownership:
- A house deed from the previous owner.
- The deed of trust showing the home as security for the loan.
- The substitution of trustee and deed of reconveyance (STDoR) from one mortgage company to the next.
- The release of the obligation (lien) by the prior lender. This signifies that the title is now clear of the prior mortgage.
- The final substitution of trustee and deed of reconveyance. This names the borrower as the home’s owner, who has paid off the mortgage debt entirely. At this point, the legal documents may refer to the homeowner as the trustor.
The release of obligation and the deed of reconveyance operate together. One legally clears the house title, and the other transfers legal ownership from the lender to the successful borrower.
Keep Those Documents! You’ll Need Them to Refinance or Sell
A frequent refinancing glitch involves the homeowner who has made a full payoff without making sure the paperwork was properly filed with the county recorder of deeds. If this issue arises, the homeowner will be asked for the final payoff letter that the previous lender mailed.
Always keep mortgage payoff letters. Sparing a title company from having to forage for proof of payment can save you weeks or even months when you refinance or sell.
Important note: Even if all your documents were timely filed and recorded, they may go missing, on account of one of those errors we’ve described above. If there is an error on the deed, it can lead to misfiling. A misfiled document can be very hard to locate in the records.
In addition to saving paper copies, it’s a great habit to keep digital copies in secure, cloud-based storage, so you’ll be able to retrieve them online from any location. Today, most real estate documentation does exist in digital form in county courthouses. Home owners can check their chains of title online if so. Otherwise, a trip to county recorder’s office may be needed. A homeowner who still needs help pulling documents together can hire a local title abstractor.
☛ Know what’s in your stash of papers — and how to store them all for safekeeping, With Deeds.com’s Homeowner’s Document Checklist and Storage Plan.
What’s the Deed of Trust About, Anyway? Less Risk for the Lender
A mortgage agreement is a direct contract between lender and borrower. In contrast, a deed of trust typically involves a third party. The three parties are:
- The borrower (called the trustor on the legal documents, and commonly known as the homeowner).
- The lender (called the beneficiary on the legal documents).
- The escrow company (called the trustee).
When a home buyer signs a deed of trust, this is to temporarily transfer the house title to a third-party trustee (escrow service) to secure the debt on behalf of the lender. The trustee holds legal title to the property until the homeowner pays off the debt. Until then, the homeowner holds equitable title. The trust deed is recorded in the county where the real estate is. (Non-institutional lenders can use the short form trust deed.)
☛ To know which states commonly employ the deed of trust in a mortgage context, see the Mortgage States and Deed of Trust States section of “You’ve Paid Off the Mortgage. What Happens Now?”
The big difference between the two customary arrangements only become apparent if the borrower defaults on the loan. In the case of a default, there’s less expense and hassle for the lender with the deed of trust. In contrast to a direct mortgage agreement, the trust deed default is subject to non-judicial foreclosure and a trustee’s sale.
Paid in Full? Congratulations!
Once your home is fully paid off, and the documents have been properly recorded, congrats! You can prove to the world that the home is yours. You’ll still need to pay property taxes, but you’ll hold the title, debt-free. You’ll have the peace of mind of knowing you can transfer or bequeath your property free and clear.
Supporting References
David McMillin for Bankrate.com: What Is A Deed of Reconveyance? (Jun. 3, 2021).
Andrew Dehan for RocketMortgage.com: Deed Of Reconveyance Explained (Dec. 2, 2021).
California Title Company: Deed of Reconveyance (2016; PDF).
Deeds.com: What Is a Deed of Trust? (Jun. 17, 2019).
Photo credits: Fotorech, via Pixabay, and Anete Lusina, via Pexels.