Understanding the Deed of Trust
In real estate, when it comes to understanding the deed of trust you must also understand the difference between a deed of trust, a deed and a mortgage? Many people are confused by these terms, so let's get things straightened out right now. First let's define a deed of trust. A deed is a legal instrument for transferring title to real estate from one person to another. It contains a legal description of the property begin transferred. When you buy a home or real property a deed is prepared. The deed states the name of the prior owner of the property and the fact that ownership of the property is being transferred to you. Deeds of trust are sometimes referred to as "trust deeds". If you borrowed money from a lender to buy real estate that lender will require that you pledge the property as security for the loan. That pledge takes the form of a mortgage. The mortgage becomes a lien on the property and is recorded after the deed is recorded. It's a Mortgage A deed of trust is just a mortgage. The primary difference between a mortgage document and a deed of trust document is that it in some states it is less complicated for lenders to foreclosure under a deed of trust. A deed of trust contains three parties: 1. The Trustor, who is the borrower 2. The Trustee, which is an entity that holds "bare or legal" title. 3. The Beneficiary, which is the lender. a. Original loan amount The Trustee Another area of confusion is the Trustee. Because mortgages do not contain a trustee, many borrowers are confused between a mortgage and a deed of trust. Deeds of trust contain a trustee, an independent third party that does not represent the borrower nor the lender. The trustee is an entity, generally a title company, that holds the "Power of Sale" in the event of default. The trustee also reconveys the property once the deed of trust is paid in full. In this case reconvey means to remove the deed of trust or mortgage lien from the property. In the event of a default, the trustee files a Notice of Default; however, in most instances, the trustee will substitute another trustee to handle the foreclosure under a Substitution of Trustee. The laws and time periods are different in each state, but as an example - after a 90-day period in the public records, and a 21-day publication period in the newspaper, the trustee then has the power to sell the property on the courthouse steps without a court procedure. During the legally required time period following recordation of the Notice of Default, the borrower can redeem the property by making up the back payments and paying the trustee's fees. Once the trustee sells the property at a Trustee's sale, it is final.
The Promissory Note AS we mentioned above the deed of trust is security of the debt, secured by the property, the promissory note is secured by the deed of trust and is the evidence of the debt. The promissory note is a promise to pay, signed by the borrower in favor of the lender. The contains the terms of the loan such as the interest rate and payment obligations. The promissory note is generally not recorded. When the loan is paid, the promissory note is marked "paid in full" and returned to the borrower, along with a recorded Reconveyance Deed. During the term of the loan, the lender retains the promissory note. It is not uncommon for mistakes to appear in the documents associated with promissory notes and trust deeds. Watch for: a. Spelling of trustors' names Additional Documents Other documents sometimes associated with a deed of trust include: Assignment of deed of trust Now when someone asks, "What is a deed of trust?" You can reply with confidence. Understanding the Deed of Trust |
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