Zombie Loans

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Photo Credit: Mike Mozart

Question:

Marsha, what is a Deed of Reconveyance and is it something I should be concerned about with my home?

Answer:

Oh yes, it is something you should be concerned about. When you borrowed the money secured by your property a Deed of Trust was created and recorded with the county recorder’s office.  There are three parties to a Deed of Trust: Lender (called beneficiary), Borrower (Trustor) and The Deed of Trust Holder (Trustee), this can be a bank or escrow company.

A reconveyance is public notice you’ve paid off your loan. If I borrow $1,000 from you and make regular payments and finally pay off the loan do I want a receipt for paying my loan off? You bet. Once a Deed of Trust has encumbered title to the property a Deed of Reconveyance has to be recorded to clear the title to the home.

When you borrowed the money the lender recorded the trust deed to secure their note with your home as collateral. Unless the fact that you’ve paid back the money is recorded, there is no public notice you paid off the loan.

The problem doesn’t often occur with a first trust deed. You sell the home and the first note gets paid through escrow, recorded and a Deed of Reconveyance follows. The problem is with “second trust deeds” or equity lines. Money you borrowed against the house to do home improvements, take a vacation or get a face lift. You make regular payments and finally pay the home equity line down to zero. Loan paid off and you’re good, right? No.

Until you ask for the Deed of Trust to be reconveyed the deed will live on and on in the public record. Imagine your surprise when you learn you don’t qualify for a mortgage because you have a second (equity line) loan on your home. “But I paid that off five years ago”. No, you paid the balance to zero. No reconveyance was recorded.

The other reconveyance problem results from recorded private party Deeds of Trust. People move away, get divorced, become medically incapacitated or simply disappear. You as the borrower need to be proactive when you are about to make your last private Deed of Trust payment.  Ask the Trustee to contact the lender for a “pay off amount”. The trustee will present your final payment and receive a note marked “paid in full” and a reconveyance for the Deed of Trust. Make sure the Deed of Reconveyance is recorded!

Contact a qualified real estate attorney for more information on this procedure.

The zombie loan is alive and out to get you.  Always make sure a paid Deed of Trust becomes a recorded Deed of Reconveyance!

 

 

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