The day you make your final mortgage payment might seem light years away, but it will eventually happen. Once the loan is paid in full, you'll own the property outright, meaning that the lender no longer holds it as collateral. There are various documents associated with purchasing a home, taking out a mortgage loan and paying that loan off. These documents, such as the deed, security instrument and release documents, come together to create what's called the title report. You'll actually get the deed when you buy the home; it's the release document that shows you've paid off the mortgage.
Deeds are legal documents that are used to complete the transfer of property ownership. When you purchase a home with a mortgage loan, the lender generally prepares the various documents that need to be signed. The property's seller will sign a deed, which is typically a warranty deed or grant deed depending on where you live, in the presence of a notary public. The deed states the names of the owners and that they are granting the property to you, the buyer. Once completed, the deed must be recorded with the county clerk. The original document should be sent back to you after this step.
At your loan's closing, you'll sign many documents, including the security instrument. It's called either a deed of trust or a mortgage. The overall function of the security instrument is to secure the property as collateral in the lender's favor until the loan is paid in full. The deed of trust accomplishes this by placing the property in a trust while the mortgage acts to place a lien on the property. In either case, the restrictions will be removed once the mortgage is paid off. Security instruments also include information regarding the terms and conditions of the loan.
A property's title is not really a single document. It's actually a report of the documents that have been recorded for that particular property, such as deeds, security instruments and other miscellaneous liens. Each time a document is filed on public record it becomes a part of the property's title report or chain of title. Using the chronological order of these documents, you can determine who bought the property from whom and whether a loan was used to buy it. When the seller signed the deed and you signed the security instrument, each of these showed up on title. You are listed as the current owner; however, the property is subject to a current mortgage loan.
When you make the final mortgage payment, there are a few steps the lender must take to either remove the lien or take the property out of trust. This is done through another type of document called a mortgage satisfaction, release deed or deed of reconveyance. This document states that you have completely fulfilled your financial obligation to the lender and that it no longer holds any interest in your property as collateral. Once the document is recorded, the title is free and clear, meaning that you own the property outright. You should get a copy of the satisfaction document. However, it's important to follow up with the county to ensure it was recorded properly.
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