Q: I recently refinanced my home. During the loan process, the loan officer told me that an old mortgage loan, paid off several years ago with a refinance, still appeared on my title report and that it had never been reconveyed. It held up the loan until they could resolve the issue. What exactly does reconveyed mean and why wasn’t this taken care of the last time I refinanced? Whose responsibility is it to ensure that this happens when you refinance? – N.T., Redmond
A: This is a very important question because many people fail to follow up to make sure the proper documents are recorded when they refinance a mortgage and pay off their original loan.
You often hear people say “the bank owns my house,” by which they mean that they are still making payments on a mortgage. In reality, they own the house from the moment the deal closes and the deed is recorded with the county because Washington is a lien theory state.
When you bought your home, the deed was recorded in your name. Check your title insurance policy and you will see that you are listed as the legal owner of the property. When a bank loans you the money to buy a house it acquires a lien against your home using a document called a deed of trust.
This document gives the lender the legal right to seize control of your property and sell it at auction if you fail to make your loan payments. That’s the lender’s collateral, which protects their investment in case you default on the loan. But as long as you make your mortgage payments on time, the lender has no rights to your property.
Once your mortgage (deed of trust) is paid in full, the lender will record a deed of reconveyance. This document releases the lender’s lien on your property by reconveying its title interest to you. You don’t have to do anything to gain legal title to the property because you already have it.
The only problem is that lenders occasionally fail to record the proper documents to clear title to the property after a loan has been paid off. You have to remember that once the bank has all its money, you become an administrative expense rather than a source of income, so filing the reconveyance is a relatively low priority.
For example, I have a friend who paid off the mortgage on his home a few years ago. He repeatedly called the lender asking for the reconveyance documents. Finally, after 14 months of constant pressure, he got the required documents to release the lien on his home.
Who knows how long it might have taken if he had simply mailed in his final loan payment and assumed everything was fine? I’ve had mortgage clients who found that loans that were paid off decades ago still appear as a lien against their property. These are usually private contracts which were not handled by a bank. In one case, the people involved were now dead, so it was very difficult to clear the title to the property.
It is the bank’s responsibility to record a deed of reconveyance in a timely manner after a loan has been paid off. Typically, this happens within two to four months after closing and you receive a copy of the recorded reconveyance documents in the mail. If you don’t receive anything in the mail within a couple months after paying off a loan, contact your former lender to make sure they have recorded the reconveyance documents. Don’t let too many months go by. The longer you wait, the more difficult it becomes to track down the appropriate paperwork to clear the title to your property.
Mail your real estate questions to Steve Tytler, The Herald, P.O. Box 930, Everett, WA 98206. Fax questions to Tytler at 425-339-3435, or e-mail him at email@example.com
Steve Tytler is a licensed real estate broker and owner of Best Mortgage, Inc. You can visit the Best Mortage Web site at www.bestmortgage.com.