What is a Trust Deed?

A deed of trust (also called a deed of trust) is a document sometimes used in financed real estate transactions, usually in place of a mortgage. Trust deeds transfer legal title to an asset to a third party, such as a bank, trust company, or title company, to retain it until the borrower repays its debt to the lender.

Although trust deeds are less common than they once were, about 20 states still mandate their use when financing is involved in the purchase of real estate. Trust deeds are common in Alaska, Arizona, California, Colorado, Idaho, Illinois, Mississippi, Missouri, Montana, North Carolina, Tennessee, Texas, Virginia, and West Virginia . A few states, such as Kentucky, Maryland, and South Dakota, allow the use of both trust deeds and mortgages.

  • A deed of trust is a document used in real estate transactions. It represents an agreement between the borrower and a lender for the property to be held in trust by a neutral and independent third party until the loan is repaid.
  • Trust deeds are used as an alternative to a mortgage, but there are differences between these arrangements.
  • A mortgage involves only two parties: the borrower and the lender. A trust deed adds an additional party, a trustee, who holds title to the property until the loan is repaid.
  • There are also different foreclosure agreements related to these two documents.

How Trust Deeds Work

Trust deeds are used in financed real estate transactions, which is when someone borrows money to buy real estate. In such a transaction, a lender delivers money to the borrower in exchange for one or more promissory notes linked to a trust deed.

The deed of trust plays an important role in these transactions: the deed transfers legal title to the real estate to an impartial trustee, usually a title company, escrow company or bank, who holds it as security for the notes. to order. Equitable title – the right to obtain full ownership – belongs to the borrower, as does full use and responsibility for the property.

This state of affairs persists throughout the repayment period of the loan. The trustee holds legal title until the borrower pays the debt in full, at which time title becomes the borrower’s. If the borrower defaults on the loan, the trustee takes full control of the property.

A trust deed can be used as an alternative to a mortgage. A mortgage involves two parties: a borrower (or mortgagor) and a lender (or mortgagor). In contrast, a trust deed involves three parties: a borrower (or trustee), a lender (or beneficiary), and the trustee.

Deed of Trust vs Mortgage

Trust deeds can be compared to mortgages. Deeds of trust and mortgages are both used in bank and private lending to create liens on real property, that is, to establish property as security for a loan. For this reason, and contrary to common usage, a mortgage is not technically a loan to purchase property; it is an agreement that pledges the property as collateral for the loan.

A trust deed is different from a mortgage in several ways. First, a mortgage involves two parties: a borrower (or mortgagor) and a lender (or mortgagee). In contrast, a trust deed involves three parties: a borrower (or trustee), a lender (or beneficiary), and the trustee. The trustee holds title to the property for the benefit of the lender; if the borrower defaults, the trustee will initiate and complete the foreclosure process at the request of the lender.

Second, mortgages and trust deeds have different foreclosure processes. With a mortgage, the lender must pursue a legal foreclosure. This is a court-supervised process applied when the lender takes legal action against the borrower for defaulting on a mortgage loan. The process is long and expensive.

In contrast, a trust deed allows the lender to initiate a faster and less expensive non-judicial foreclosure, bypassing the court system and following the procedures outlined in the trust deed and state law. If the borrower does not return the current loan, the property is auctioned off through a trustee sale.

Is a trust deed the same as a mortgage?

No. A mortgage involves only two parties: the borrower and the lender. A trust deed adds an additional party, a trustee, who holds title to the property until the loan is repaid. There are also different foreclosure agreements related to these two documents.

What is the advantage of a trust deed over a mortgage?

A trust deed has one crucial advantage over a mortgage from the lender’s perspective. If the borrower defaults on the loan, the trustee has the power to seize the property on behalf of the beneficiary.

Are trust deeds a good idea?

Trust deeds can be a great help for financial stability, but they’re not for everyone. They are best suited for people who have a regular income and can commit to making regular payments. This is due to the tighter and faster foreclosures available with trust deeds compared to regular mortgages.

The essential

A deed of trust is a document used in real estate transactions. It represents an agreement between the borrower and a lender for the property to be held in trust by a neutral and independent third party until the loan is repaid.

Trust deeds are used as an alternative to a mortgage, but there are differences between these arrangements. A mortgage involves only two parties: the borrower and the lender. A trust deed adds an additional party, a trustee, who holds title to the property until the loan is repaid. There are also different foreclosure agreements related to these two documents.

Comments are closed.