For commercial and residential properties, a deed of trust agreement involves three parties – a lender, borrower, and third party trustee that holds the deed of trust until it is transferred to the borrower. The third party may be an independent trustee, an attorney, a loan servicer, among others. When the loan is paid in full, the trustee enacts reconveyance. Reconveyances are sometimes accompanied by Zero Balance Demand Letters.
What is a Zero Balance Demand Letter, and How is it Different from a Deed of Reconveyance?
Before a deed of trust is paid in full, a third-party trustee holds into the deed of trust for the lender. When a loan for a deed of trust is paid in full, the lender alerts the trustee to begin the reconveyance process. This process transfers the deed of trust from the trustee to the borrower.
Related Article: Deed of Reconveyance: What Lenders Need To Know
The trustee records the deed of reconveyance and delivers it to the trustor (borrower) along with the original note marked “canceled” or “paid-in-full.” Another record that may be submitted to the borrower is the Zero Balance Demand Letter.
While the deed of reconveyance is delivered to the county or state officials for legal record, a Zero Balance Demand Letter typically comes from the lender and is delivered to the borrower. Third party trustees cannot issue Zero Balanced Demand Letters, only the beneficiary (lender) or servicer can. Trustees, however, can issue reconveyances.
The letter behaves as a formal receipt, stating to the borrower that they have a zero balance on their loans. Deed owners value this letter, as it may behave as a formal document for the owner to present to potential buyers of the property that want to know there are no liens on the property.
The zero demand is required by some escrows when recording a reconveyance of a deed of trust. The letter is usually provided by the escrow company handling the sale or financing of the property.
Do Lenders Need to Write a Zero Balance Demand Letter
For loans on residential and commercial properties, the deed of reconveyance will typically be sufficient to satisfy the official record of the reconveyance. There is no statutory requirement that such a letter be provided.
Sometimes, however, the borrower may ask for a formal letter from the lender to keep as a receipt or to present to potentially interested parties. The zero demand is typically used when a loan was paid off in a prior transaction, but for some reason the reconveyance was not recorded. In order to clear the public records, the zero demand along with a new reconveyance is requested so that the financial transaction reconciles at close of escrow.
How to Write a Zero Balance Demand Letter
A Zero Balance Demand Letter should name the lender, and borrower, and it should include any necessary information about the loan, account, or property. The letter will inform the reader of which courthouse or jurisdiction the reconveyance was filed.
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