California Real Estate Broker ExaminationFinancingHard
A California homeowner with a primary residence is facing severe financial hardship and is considering options to avoid foreclosure. The homeowner has a first trust deed with an outstanding balance of $400,000. An investor offers to purchase the property for $350,000. The lender agrees to this sale and fully releases the homeowner from any further liability. What type of document would the lender typically issue to confirm the full satisfaction of the debt in this scenario?
- AReconveyance Deed
- BDeed of Trust
- CCertificate of Sale
- DLis Pendens
Show answer & explanationAnswer & explanation
Correct answer: A. Reconveyance Deed
This scenario describes a short sale where the lender agrees to accept less than the full amount owed and releases the borrower from liability. In California, where trust deeds are common, a Reconveyance Deed is the document issued by the trustee to transfer the title back to the borrower (or in this case, to clear the lien so the property can be sold to the new buyer) once the debt secured by the deed of trust has been fully satisfied, even if it's a 'short' satisfaction.
Why the other options are wrong
- B. A Deed of Trust is the original security instrument creating the lien, not a document issued upon debt satisfaction.
- C. A Certificate of Sale is issued to the buyer at a foreclosure auction, not by the lender to the borrower after a short sale.
- D. A Lis Pendens is a notice of a pending lawsuit, typically used in judicial foreclosure, not for confirming debt satisfaction after a short sale.
Reconveyance Deed
A document executed by a trustee to return (reconvey) legal title to the trustor (borrower) after the debt secured by a deed of trust has been fully paid.
- Used in states that use Deeds of Trust (like California).
- Clears the lien from the property's title.
- Signifies the satisfaction of the mortgage debt.
Memory trick: Reconveyance: 'R'eleases 'R'eal estate 'R'ights.