First time as private lender. Request for reconveyance process?

Question

The borrower seems ready to pay off his loan. His escrow company has asked me to sign a Request for Reconveyance and a "Beneficiary's demand". I have not yet received the original loan amount back yet. Shouldn't I be paid back in full before I sign the Request for Reconveyance? Or is this the correct process when going through an escrow company (Borrow returns loan amount to me via escrow)? I didn't expect we'd be using an escrow company at the end of our contract.

Also, they mention the place to sign the "request for reconveyance" is on the back of Trust Deed itself, but there is clearly no areas to sign on the Trust Deed anywhere. Would I just find my own reconveyance form online?

Thank you!

Also, they mention the place to sign the "request for reconveyance" is on the back of Trust Deed itself, but there is clearly no areas to sign on the Trust Deed anywhere. Would I just find my own reconveyance form online?

Thank you!

Jeff S. · Answer

"I tried this and the escrow officer said title wanted the original documents in hand before sending me a check."

Of course they said that, @Rami W. They always say that, and some title/escrow companies can be pretty aggressive.  In fact, as you suggested in your original post, why would you send a document that reconveys your loan before you've been paid back?  You shouldn't, and the law allows that.

In general, California gives you 30 days after you've been repaid to send your original documents in, along with the sub & recon.  They should know this.  Not to be cynical, but you could tell them to take their time and remind them you earn interest by the day.

Paid back to me means cleared funds in my account; and these must be accurate.  When we funded the loan the title company only accepted a wire transfer.  So should you.  The first time title sends you the wrong amount, you'll regret being so accommodating.  I'd make it clear you won't accept a check, or you'll wait until you're certain it clears before sending the original docs.

"I have not yet received the original loan amount back yet."

I thought you were indicating that you were relying on others to calculate the loan amount due, not you.  I know other lenders who rely on escrow for this. Perhaps I misunderstood, and that's why I said it was a bad idea.  Obviously, to me at least, it should be you who calculates and checks the payoff.

"Interestingly, in lieu of a Sub and Recon, I received a "Notice of Intent to Record Release of Obligation Under Deed of Trust (C.C. 2941)" from the closing title company on my last paid off loan."

My understanding, Account Closed

Jeff S. · Answer

In CA, there are generally five documents required to close out a loan, @Rami W.

Payoff Demand

This document simply lists all amounts owed the lender to satisfy the loan.  Since you never know the exact date you will be paid off, it usually specifies the principal balance, any other charges, and the daily amount owed.  Title does the math on the day they wire your funds.  Most title co.'s will call you to confirm this amount.

Most escrow or title companies have a simple demand form you can request and fill out detailing the payoff.  They are all different, and I never find that these forms fit our specific details, so I have a standard letter I write, which is clearer -- to me at least. Title and escrow don't care what you use as long as it's understandable and complies with the law.

Original Note

Title will require the original note.

Original Deed-of-Trust (DOT)

Some older DOT's have a page in the back that says the loan has been reconveyed (paid off or satisfied).  You can ignore this page if it exists, in favor of the sub & recon, below.  Title will require this original document, as well.

Wire Instructions

Where do you want Title to wire your money? Get this info from your bank.

Substitution of Trustee and Full Reconveyance (Sub & Recon)

Your DOT probably has the original Title company listed as the trustee on the face of the document.  The sub & recon replaces their name with yours.  As you'll read on it, your notarized signature also confirms that this loan has been reconveyed.  Even though I have some blank sub & recon's, I never fill these out myself.  I always ask the escrow company to do this, using their form, and then email it to me.  This document gets recorded by title, which is why it must be notarized, and effectively wipes out your lien (i.e. the DOT) against the property.

This is not about neither party trusting the other.  We email our demand, along with copies of all documents, to escrow.  Our demand adds that we will send the originals once we receive full payment.

NEVER SEND ORIGINAL LOAN DOCUMENTS TO ESCROW UNTIL YOU BEEN PAID OFF IN FULL.

Your money, your rules.  They occasionally hem and haw but this is legal.  Title makes mistakes and we've been paid an incorrect amount on rare occasions. Strangely, it's almost always been in our favor.

Once you've confirmed that the amount you received is correct (and I don't understand why someone else is doing this for you, Rami – really, really, really bad idea) then send all of the original documents via certified mail to escrow. They will forward to title.

Now you can loan the money again.  Good luck.

Adam McClure · Answer

Sorry but I think Jeff is giving the wrong advice. It's the best way to slow down the process, piss off the borrower, and have title giving you the negative feedback you seem to be receiving at this point as a "newbie". Just submit everything along with instructions to escrow. Typically they will provide instructions stating you release the reconveyance and surrender the note upon receipt of funds. They interpret that to mean once the wire confirmation is good they can record the reconveyance.

Mostly your distrust (and that of Jeff) with the process is emblematic of inexperience. Once you understand the mechanisms and the legal background to it you will be a lot more relaxed. Gary W. has the right idea.

Me: Borrower/Broker/Developer typically all at once.

Rami W. · Answer

@Jeff S. I will definitely work on my own personalize Beneficiary's Demand for my next loan closing. I didn't care for the one escrow provided. I'll dig through BP for good examples.

Thanks again for the great advice.

Account Closed · Answer

Hi @Jeff S.

Interestingly, in lieu of a Sub and Recon, I received a "Notice of Intent to Record Release of Obligation Under Deed of Trust (C.C. 2941)" from the closing title company on my last paid off loan.  Unlike a sub and recon, it requires no action on the part of me the lender.

Usually either my loan servicer or escrow will complete a sub and reconveyance for me to notarize and return for them to then record.  I'm thinking this is something new that title companies are now doing, I'm guessing because lenders are generally pretty lame about recording reconveyances thus making loans appear open when they are really paid off.

If this becomes common place I think it's for the better.

Have you seen anything like that?

Account Closed · Answer

Sounds like you haven't gotten to the point yet where they also ask for the original note and deed of trust ... just wait, it gets even more weird ... but it's normal.

Rami W. · Answer

@Adam McClure thanks for the additional insight.

Rami W. · Answer

A follow-up on this. Thanks for the responses everyone. Escrow has closed and I've received my loan back.

@Jeff S. "RE: NEVER SEND ORIGINAL LOAN DOCUMENTS TO ESCROW UNTIL YOU BEEN PAID OFF IN FULL."

I tried this and the escrow officer said title wanted the original documents in hand before sending me a check.

Also, not sure what you meant by "I don't understand why someone else is doing this for you". Wouldn't I be the one to confirm the amount I received is correct? Are you saying I should use a CPA for this, or?

Gary W. · Answer

This is quite normal in my experience.  It's the classic "neither party trusts the other" scenario in signing the document versus receiving the funds that the escrow company satisfies.  The escrow company (I only use the large ones) will either provide the Request for Reconveyance or the original Deed of Trust should have it at the end.  You should sign the Reconveyance along with instructions about the payoff (interest, timing, how you want the funds (check or wired), etc.).  Hopefully it goes smoothly for you.

First time as private lender. Request for reconveyance process?

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