The Deed of Reconveyance – What Happens if You Pay Off Your Loan and The Trustee Does Not Clear Title?!

Law Offices of Peter N. Brewer

by Law Offices of Peter N. Brewer on June 13, 2011

in Mortgage Issues

A brief refresher of how the Deed of Trust works.  Despite common parlance, California is not a “mortgage” state.  For example, if Betty Borrower purchases a house in San Jose and puts down $100k and borrows $400k from Wells Fargo Bank, that $400k is memorialized with a Promissory Note (debt instrument) and then the house becomes collateral under the Deed of Trust (security instrument).

The Deed of Trust has 3 parties:

1)      The Trustor (borrower who puts up the house)

2)      The Beneficiary (lender who lent the purchase money)

3)      The Trustee (the person the Beneficiary designates to sell the collateral if the loan is not repaid.)

When Betty Borrower finishes paying off her loan, Wells Fargo Bank must notify the Trustee that the loan is paid off, and complete the “Request for Reconveyance”, which is typically the lower portion of the Deed of Trust (usually not recorded).

California Civil Code section 2941 (b)(1) requires the beneficiary, upon payoff, to “execute and deliver to the trustee the original note, deed of trust, request for a full reconveyance….” The trustee then executes and records the full reconveyance within 21 days of receipt of the documents from the beneficiary, delivers a copy of the reconveyance to the beneficiary and, upon request, delivers the original note and deed of trust to the trustor. (Civ.Code § 2941, subd. (b)(1)(A)-(C).)

What happens if the Trustee or the Benficiary does NOT do this? The statute provides two backup methods to help the owner clear title to their property. First, upon request by the trustor, the beneficiary must substitute itself in as trustee and execute a full reconveyance. (Civ.Code § 2941, subd. (b)(2).) Second, if neither the trustee nor the beneficiary has executed the full reconveyance within 75 calendar days after the loan payoff, “a title insurance company may prepare and record a release of the obligation” after giving notice of its intent to do so to the trustor, trustee, and beneficiary. “The release issued pursuant to this subdivision shall be entitled to recordation and, when recorded, shall be deemed to be the equivalent of a reconveyance of a deed of trust.” (Civ.Code § 2941, subd. (b)(3)(B).)

Are there any teeth to this provision? Not really.

Section 2941(d) states “The violation of this section shall make the violator liable to the person affected by the violation for all damages which that person may  sustain by reason of the violation, and shall require that the violator forfeit to that person the sum of three hundred dollars ($300).”

Obviously $300 is not a big penalty for the violation.  Establishing the damages from the delayed recording then becomes the more crucial factor.  In today’s market of falling interest rates, there is probably a stronger likelihood that Betty Borrower can show some damages due to the inability to refinance at a lower interest rate or take out money of the property—but those types of damages can be difficult to prove beyond speculation.

More crucially, this statute only has 1 year statute of limitations, which means that Betty Borrower has very limited time to file suit against the Trustee and/or Beneficiary. [Prudential Home Mortgage Co. v. Superior Court (1998) 66 Cal.App.4th 1236.]

Ultimately, we have found that clients with this issue have more success after an attorney has worked his or her way up the food chain at a title company to prepare and record the release.  Title companies earn revenue by selling insurance and performing a function like this, while part of their duties, does not necessarily earn them any income so working with them can be time consuming.  This time delay is further exacerbated by the fact that over the years, many title companies have merged, gone bankrupt or simply changed names thereby making it difficult to track them down.  Betty Borrower will be best served if she finds legal assistance early as opposed to waiting until she is trying to sell the property and close escrow in a rush.

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{ 6 comments… read them below or add one }

avatar Diane Healow October 23, 2012 at 6:18 pm

I am in the process of trying to refinance my home and the title report is still showing a lien on title in the amount of $202,000.00 dated April 25, 2002 and this was paid off when we refinanced for $250,000.00 on 12/11/2010. This needs to be reconveyed and I am not able to lock my loan until the is resolved. Thanks Diane

avatar Mary Deleon July 9, 2015 at 9:08 am

I’m getting ready to be Power Of Attorney for my son and take charge over his account until he can but f I’m trying to get the deed of my son estate how to go about, what to fil,e and important whats the first thing to do to see how much debt they put on his estate

avatar rick thomas April 25, 2016 at 7:44 pm

the beneficiary died after I had sent the last payment on a$60,000 note. The heirs were impossible to find and did not re convey, but sent me the original note back.
This was approx 20 years + ago and I have had no contact with beneficiaries heirs. How can I have deed of trust cancelled and property re conveyed?

avatar Jeff Wilkinson June 16, 2016 at 3:18 pm


Did you ever get this resolved? I’m in an almost identical situation. Thanks!

avatar Jeff Wilkinson June 16, 2016 at 3:19 pm

Hi Rick – did you ever get this resolve? I’m in almost an identical situation. Thanks.

avatar scott cochran September 5, 2017 at 5:03 pm

I have a case where my primary was held by WaMU, absorbed by Chase, then not re conveyed when paid off. I found this out only now, 5 years later, when trying to get a second mortgage. I contacted chase, who was ultra unhelpful and non apologetic , and had to jump through multiple hoops, even though I had all documents in hand.
If the maximum penalty is $300, I guess I don’t want to bother, but if there is a way to make this substantially higher, I can prove some harms, and I have all of the documentation for an air tight case, then feel free to email me.

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