A deed of reconveyance is a transfer document issued to a mortgage borrower after clearing mortgage debt, according to Investopedia. The document transfers the property title from the lender to the borrower when the latter pays the mortgage in full.
The document is recorded and issued in the county of the location of the property, notes Investopedia. A deed of reconveyance provides evidence for the mortgage being paid. A property with liens against it cannot be for sale, except when the monies are from the proceeds of the disposal of the property. In such instances, the deed of reconveyance becomes part of the closing process of the home’s sale. Though the mortgage is still outstanding, and the borrower owes the bank, the bank has a security interest in the house.
When the mortgage is in default, the bank forecloses on the home, evicts the borrower and sells the home to fulfill the unpaid mortgage obligation, explains Investopedia. A homeowner with a deed of reconveyance is safe from bank foreclosure as the bank no longer has any security interest with the house. It is recommended to have a copy of the deed of reconveyance kept at the local public office. Otherwise, in case of the loss of documents, there is nothing to prove the loan has been paid. This could create doubt about the home's ownership.