Who Holds the Deed to a House With a Mortgage?
Clarify the often-misunderstood relationship between homeowners, mortgages, and property deeds. Learn where true ownership lies.
When a home is purchased with a loan, confusion often arises regarding property ownership and the official document proving it. This stems from the involvement of multiple parties and legal instruments in real estate transactions. Understanding the distinct roles of deeds and mortgages clarifies how property ownership is established and maintained, even with debt.
Establishing Property Ownership
A deed is a legal document that formally transfers real property ownership. It proves a property owner’s rights and interests in the land and any structures upon it. For legal effectiveness, a deed must accurately describe the property, identify the grantor (seller) and grantee (buyer), and be properly executed and delivered. The deed is then recorded with the local government to create a public record of the ownership transfer. This recording provides public notice of the new owner and helps protect against competing claims.
The Mortgage’s Function
A mortgage functions as a loan agreement using real estate as collateral to secure debt. When a borrower takes out a mortgage, they do not transfer home ownership to the lender. Instead, the mortgage document creates a security interest, often called a lien, on the property. This lien gives the lender a legal claim against the property if the borrower fails to meet loan terms. A mortgage allows the lender to pursue legal action, such as foreclosure, to recover the outstanding loan balance by selling the property if the borrower defaults.
Who Holds the Deed
The homeowner, or borrower, holds the deed to the property, even with an active mortgage. This is because the deed represents the legal title and ownership of the property. While the lender has a significant financial interest through the mortgage lien, they do not possess the deed itself. Instead, the lender holds the mortgage document or a deed of trust, which legally binds the property as collateral for the loan. The homeowner retains the deed as proof of legal ownership throughout the mortgage repayment period.
Changes in Deed Custody
The deed remains with the homeowner while they own the property. When a property is sold, a new deed is prepared and recorded, transferring ownership from the seller to the new buyer. Upon full mortgage repayment, the lender issues a “satisfaction of mortgage” or “reconveyance” document. This document is then recorded with the local government to remove the lender’s lien from the public record. The homeowner continues to hold the original deed, which now represents ownership free of the previous mortgage lien.