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What Is a Deed of Release?
A deed of release is a legal document that removes claims on an asset or releases parties from contractual obligations. Commonly used when a mortgage is fully paid or in employment settlements, it confirms that prior commitments have been satisfied.
In real estate, it allows a lender to transfer property title to the borrower, clearing any liens. Deeds of release protect both parties by documenting fulfillment of obligations, though understanding the legal rights and implications before signing is essential.
Key Takeaways
- A deed of release confirms that a previous claim on an asset, like a home title, has been removed after satisfying the terms of a loan.
- When you pay off a mortgage, the lender issues a deed of release, showing you now fully own the property.
- Deeds of release can also apply to severance packages, freeing employers and employees from prior obligations.
- Be sure to record the deed of release to ensure all liens on the property are officially cleared.
- A deed of release can relieve obligations from personal guarantees on business loans.
Understanding the Function of a Deed of Release
A good way to understand how a deed of release works is to consider it in a common situation for many people: homebuying. Most individuals purchase their homes with the help of a mortgage provided by a financial institution. The bank providing the funds for the mortgage doesn’t just lend the money in good faith—it takes a legal claim against the house as collateral until the loan is paid off.
A mortgage deed of release is then created when the borrower meets all mortgage payment terms or makes a full prepayment to satisfy the loan. The lender holds the title to the property until that time and is formally a lienholder of record until full and final payment is made. The title provides secured collateral for the loan payments for the life of the loan, reducing the default risk for the lender.
The lending institution’s legal counsel typically creates the deed of release when the loan has been satisfied. It reports that the loan has been paid in full under the terms required. It also states that the lien has been removed, and the full title has been transferred to the homeowner.
The homeowner owns the asset free and clear after the title and deed of release are provided. They are no longer subject to any terms or obligations of the lender. The lending account is closed.
Important
Be sure to have the deed of release recorded by the same agency that recorded the original mortgage so you can be absolutely sure that all liens are removed.
Common Scenarios for Deeds of Release
Employment agreements are another scenario where a deed of release might be used. The document can free the employer and employee of any obligations under their employment agreement. Sometimes, a deed of release might give an employee a designated payment. This can occur in the case of a severance package.
The deed of release can include the terms of the severance, including payment and the length of time that payments will last following the release. It might also identify confidential information that the employee cannot share after termination or restraint clauses that prevent a departing employee from forming a similar business or soliciting customers or clients.
Tip
If you’re presented with a deed of release in a workplace setting, read it carefully to ensure you understand what you’re agreeing to.
Real-World Examples of Deeds of Release
The most common example of a deed of release can occur when someone buys a home. When you take out a mortgage to purchase property, the property acts as collateral for the loan. Meanwhile, the lender holds the lien on the home as the entity to which you owe money. When you complete your mortgage terms and pay off the loan in full, the mortgage lender can create a mortgage deed of release.
Another example of a deed of release is associated with personal guarantees. A personal guarantee means that you assume personal responsibility for a debt, even if that debt is owed by a business entity you own. If you agree to end a personal guarantee, whether the loan has been paid in full or not, you could do so through a deed of release.
Note
Agreeing to a Uniform Commercial Code (UCC) lien for a business loan creates a different set of legal and financial obligations from a personal guarantee.
Finding sample deed of release forms online is possible, though you may pay a fee to download them. It’s also important to ensure that any deed of release form that you’re using conforms to your state’s legal guidelines for a release of deed.
Important Considerations for Deeds of Release
Contact the Federal Deposit Insurance Corp. (FDIC) if you’ve failed to receive a deed of release because your lending bank failed and went into FDIC receivership. The FDIC indicates that it can usually sort out the problem for you.
The regulator offers an interactive search tool that you can use to find out if the government acquired your bank through receivership.
Is a Deed of Release Proof of Ownership?
Yes, once you’ve paid off your mortgage and the lender issues you the deed of release, it proves that you own your home.
Can I Request a Deed of Release if I Pay off My Mortgage Early?
You shouldn’t even have to ask for the deed of release—the lender is required to issue it once you’ve paid your mortgage in full.
Is a Deed of Release Called Anything Else?
Yes. You may also see a deed of release called a deed of reconveyance, a full reconveyance form, or a satisfaction of mortgage document. These all just mean that you’ve paid off the mortgage and own your property.
The Bottom Line
A deed of release confirms that all claims or liens on a property or asset have been cleared, fully transferring ownership to the holder. Generally issued after a mortgage is paid off, it proves the lender’s interest has ended and should be recorded to make the release official.
Also known as a deed of reconveyance or satisfaction of mortgage, it can apply to other contractors as well, underscoring the importance of understanding its legal implications.
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