Ensuring a smooth transition of ownership: Deed of reconveyance

A mortgage is a legal agreement between two parties namely the mortgagor (borrower) and mortgagee (lender) where the mortgagor borrows money against a property of his/hers, which gives the right to the mortgagee to take the property permanently as if the mortgagor fails to repay the money borrowed. Reconveyance means the concept where the borrowed money once paid back to the mortgagee leads to the return of the property back to the mortgagor. The deed of reconveyance gives legal backing to the arrangement of return of the property back to the mortgagor i.e. it clears the lender’s name off of the property.

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See also: What is conveyance deed and what does it include?

What is the deed of reconveyance?

A deed of trust is issued when an individual wishes to receive a loan for any purchasing or other requirements. This agreement places the property’s title in a trust, with a trustee as the beneficiary. Only when the borrower completely pays off the loan is a deed of reconveyance used to remove the trust from the property’s title.

The trustee, whose signature is verified by a notary public, signs this document to make sure it’s accurate and genuine. Then, this document is sent to the local government’s records office for official recording. The specific rules for handling a deed of reconveyance can vary depending on where you are.

With a deed of trust, the bank has the power to penalise the borrower. If the borrower doesn’t make their mortgage payments, the bank can take the property and sell it to recover the remaining loan amount.

On the other hand, with a deed of reconveyance, the bank no longer owns the property. This means the homeowner is free to sell or transfer the property as they like.

Elements of the deed of reconveyance

Name of the mortgagor and mortgagee
Address of property in concern
Legal description of the property
Evidence material to prove that the borrower has fulfilled their side of obligation against the lender and that the property secured by the home loan now belongs to the borrower
Notary stamps and signatures of the parties involved

Procedure

To register a Deed of Reconveyance in India, you can follow these simple steps:

Create the deed following the prescribed format, including borrower and lender (trustee) details, property description and proof of repaying the mortgage.

Have the document notarised to confirm its authenticity.

Submit the deed and required supporting documents to the local sub-registrar office in the property’s jurisdiction.

Pay the necessary stamp duty and registration fees.

The sub-registrar will review the documents and once approved, the Deed of Reconveyance will be officially registered.

After registration, the deed acts as legal evidence of mortgage repayment and the transfer of property title from the lender back to the borrower.

Draft of Deed of Reconveyance

RECONVEYANCE DEED

I, ___________, aged ___ hereinafter called first party & ___________ aged years _____ Second party is/are Residing at _____________________as cleared the dues of the Loan of Rs ____________ in full and final .

Settlement on________ in respect of the MEMORANDUM OF DEPOSIT OF THE TITLE DEEDS, WHICH WAS REGISTERED as No. ____________ Dated_____________ and registered in the office of the Sub Registrar ___________ Bangalore. The said loan has been fully serviced with interest and there are no dues payable to the Bank against this property. We have Discharged the SECURITY and delivered the Title deeds to the possession and safe custody of Mr/Mrs. _________________________

SCHEDULE OF THE PROPERTY

(explain details of the property in concerned in detail)

Importance of deed of reconveyance

The deed of reconveyance has paramount significance in real estate transactions for several compelling reasons. To begin with, it fulfils a vital role in establishing a property’s clear title, certifying that it is unburdened by any lingering mortgages, liens, or claims. This assurance is not only highly desirable but often a strict requirement for potential buyers, instilling a sense of trust and confidence in the transaction.

Furthermore, when homeowners opt to sell their property, the reconveyance deed becomes an indispensable asset, offering tangible proof that the mortgage has been completely settled and the property now resides under their exclusive ownership. This documentation streamlines the selling process by providing prospective buyers with the peace of mind that the property has a clean title.

Additionally, the reconveyance deed acts as a protective shield for homeowners’ rights by preempting any potential claims from lenders, ensuring undivided ownership and control. It also serves as a clear marker of the successful completion of mortgage repayment, signifying the transition from mortgage holder to outright property owner. Lastly, it serves as a reminder to homeowners of their ongoing financial responsibilities, such as property taxes, which remain their duty even after the mortgage has been fully paid off, thus upholding the property’s legal standing and rights.

Challenges

Maintaining records of ownership

Filing a reconveyance deed can be tricky and cause problems in property deals. It’s really important to officially record this deed in the county’s public records where the property is located. If an individual misses out on this, it can lead to issues with who owns the property, as there won’t be a proper record that the loan has been paid off.

Fiscal issues

Common situations where reconveyance deeds face problems include mistakes during money transfers or when figuring out how much is needed to pay off the loan. Other reasons for making mistakes can happen with title companies, especially when they also handle title insurance. They play a big role in making sure the property gets transferred correctly. Errors during this process can make it difficult to sell the property later.

Multiple loans

Mistakes can happen with mortgages when there are multiple loans on a property and the order of who gets paid first gets mixed up. This can cause problems, especially in short sales, where one lender might not get paid as much as they should and this can mess up the sale.

Drafting issues

Mistakes within the reconveyance deed itself, like spelling names or describing the property incorrectly, are another common issue. Fixing these mistakes takes more time and effort, usually by recording another document to correct them.

When one refinances a loan, it often triggers a reconveyance, which can introduce complications when dealing with the new lender. These challenges show how important it is to keep good records in real estate deals. Both parties involved should fulfil their due diligence with regard to filling and other processes involved to ensure that the above mistakes are avoided and the legal process is worked out efficiently.

Faqs

Why is the deed of reconveyance important?

A deed of reconveyance is important because it helps to clearly denote who is the new and final owner of a particular property against which the loan was taken.

How different are deeds of trust and deeds of reconveyance?

A deed of trust is signed when the property is put in the name of the trustee and a loan is given against the same, but the deed of reconveyance is signed when the amount lent is returned and satisfied.

Can the sale of property be validated without a deed of reconveyance?

Yes, the sale of the property can be validated without a deed of reconveyance but in cases where the property was mortgaged, a deed of reconveyance is required to validate the process of the sale of the concerned property.

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Upasana Mandhata

Upasana Mandhata, currently in her final year of Law, is pursuing a BA LLB Degree at VIT University Chennai. Her interest in content creation dates back to her school and college years when she discovered a writing passion. Drawing from personal experiences, her writing style has been shaped by her journey and encounters. She enjoys experimenting with new recipes, painting, or swimming while clocking out of work time.