Deeds of Reconveyance

As a title, that sounds very boring, right? However, in truth, these are symbols of the end of mortgage payments and something to be celebrated. On the other hand, if you don’t have one and you have finished paying off your mortgage, this lack can come back and bite you at the most importune time.

Let’s take a step back. You are buying a home or a piece of land. You have enough money for the down payment and enough to make the monthly mortgage payments going forward (for the sake of this article, I’m going to assume a rosy future). For a home, you likely have a 30 year mortgage at a set interest rate. Every month you make a payment of the same amount and this is divided between interest and principal. At first, you are mostly paying interest; then later in the cycle of payments, more money is put toward principal. This is the reason that making extra principal payments each year will lower the total amount you end of paying your lender - but that is for another article on another day. At the end of the 30 years, you will make your final payment. At this point, you will want to request that the lender file a deed of reconveyance that takes their name off of the title and leaves yours there alone.

If you have done everything right and the lender has taken that deed of reconveyance to the County Clerk and filed it, you can now have that celebration I mentioned. Of course, 30 years is a long time; so much can and does change in that amount of time. My own parents had more than one mortgage holder over the life of their loan - most banks sell their loans and they can be sold many times over. If this happens, it makes it even more difficult to get to the right person to get that deed of reconveyance. I cannot stress enough that this is something you need to stay on top of - at least in the sense that you have that contact information stored somewhere safe for when the time comes that you need it.

What happens if you have not done everything right? This is where it gets tricky. Let’s say that it has been 40 years and the mortgage has been paid off for the last ten. You decide to sell your home. The title company pulls a “preliminary title report” and it shows that there is still a lien on the property from ABC Bank. You know that you paid ABC in full, so why are they still on there? Because they didn’t file that deed of reconveyance. The good news is that most lenders are around and can be found and even if the loan is sold, there tends to be a paper trail to follow. The Title company can usually find the lender and get the deed of reconveyance filed before the sale of your home happens.

What is the worst case scenario? Well, I have had to go through this three times now in the past 12 months. Let’s say that for whatever reason you did not use a commercial lender. Let’s say that Aunt Martha, or the seller lends you the money to make the purchase and they are put on title as a lien holder. All is well at first. You make your payments to Aunt Martha or Mr. and Mrs. Seller; these types of loans tend to be of shorter duration - five to ten years or so. That’s good, it’s less time to lose track of things, right? Only, now 30 years has past, you long ago paid off Aunt Martha or Mr. and Mrs. Seller, and you want to sell. Now we get that preliminary title report and we see that Aunt Martha is still on the title as a lien holder. If Aunt Martha is still alive, great; you can ask her to do that deed of reconveyance and move on. What if she isn’t? Now you need to find her heirs and get them to do this for you. What if Mr. and Mrs. Seller have since died? Do you know their heirs names? Can you find them?

In the past 12 months I have had a dead Aunt Martha, a dead Mr. Seller with no heirs and a dead Mr. Seller with heirs no one could track down. In no case were we able to find anyone who could certify that the lien on the property had been paid in full. One of these was from the 1970’s, one from the 1980’s and the last from the 1990’s. What happened and what should you do?

The first step is for the current seller of the property to record a surety bond. The bond is recorded and at least 30 days must elapse before the sale can move forward. California Civil Code 2941.7 provides more information on this process. There is a cost associated with this as well as the delay in the closing of the sale. Once the bond is in place and the time has passed, the lien can be removed and the sale can move forward.

My advice in writing this article is to stress to you now, before you are thinking about selling, to ask yourself have paid your mortgage in full? If yes, is my title clear of the loan(s)? You can ask the County Clerk/Recorders office for help in this. If there is still an old lien on the title, take action now to clear that up. In one of the instances I dealt with, the oldest one, the property had been gifted to another, non-relative, in a will, then to another in a will and finally sold by these heirs, none of whom had any idea that back in the 1970’s there was a $5,000 lien on the property that would end up holding the sale from closing for SIX months. Go get that deed of reconveyance!