Hypothecation: Reconveyance and Power-of-Sale

A hypothecation mortgage is based upon the use of the property as a tradable asset. Mortgaging your home in this way often involves handing over the title or deed of the home to a third party who keeps it safe until the mortgage is repaid or until you default. At the end of the mortgage, the third party will either hand the title back to you or sell the property in order to pay back the lender. These actions are known as reconveyance and power-of-sale.

Reconveyance

This is the action by which the third party hands the title back to the borrower. At the end of your mortgage, if you have successfully paid off all of the debt, your lender will send a message to the third party, along with a note of reconveyance. Any promissory notes will be handed to the third party at the same time. The reconveyance instructs the third party to hand the title to you, the borrower.

Power-of-Sale

If you default on the mortgage, the lender may decide to use the title to sell the property. In this case, the lender would send the third party a message but this time with a power-of-sale. This would instruct the third party to put the property up for sale and give the proceeds to the lender.

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