What Is a Deed of Release?
A deed of release is a legal document that removes a previous claim on an asset. It provides documentation of release from a binding agreement. A deed of release might be included when a lender transfers the title of real estate to the homeowner upon satisfaction of the mortgage. A deed of release literally releases the parties from previous obligations.
- A deed of release literally releases the parties to a deal from previous obligations, such as payments under the term of a mortgage because the loan has been paid off.
- The lender holds the title to real property until the mortgage’s terms have been satisfied when a deed of release is commonly entered into.
- A deed of release can also free an employer and an employee of any obligations that they had under their employment agreement, such as in the case of a severance package.
- Deed of release forms can also be used to relieve personal guarantee obligations for business loans.
How Do Deeds of Release Work?
A good way to understand how a deed of release works is to consider it in a situation that’s common 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 on the property 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 to her. She’s no longer subject to any terms or obligations of the lender. The lending account is closed.
Be sure to have the deed of release recorded with the same agency that recorded the original mortgage, so you can be absolutely sure that any and all liens are removed.
Types of Deeds of Release
Employment agreements are another scenario where a deed of release might be used. The document can free both the employer and the employee of any obligations that they had under their employment agreement. In some cases, 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 cannot be shared by the employee after termination, or restraint clauses that prevent a departing employee from forming a similar business or soliciting customers or clients.
If you’re presented with a deed of release in a workplace setting, be sure to read it through carefully to ensure that you understand what you’re agreeing to.
Example of Deed 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, a mortgage deed of release can be created.
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 that 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.
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.
It’s possible to find sample deed of release forms online, 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.
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 your bank was acquired by the government through receivership.