Deeds Of Trust

When financing a home purchase, your lender and state may or may not need a deed of trust. These differences should help you understand this contract.

 

The Deed of Trust: What Is It?

This type of secured real estate transaction, also referred to as a trust deed of the trust deed, is used in some states instead of a mortgage during the closing of a property. This agreement between the person buying the property and a lender stipulates that the buyer will repay the loan. Until the loan is repaid in full, trustees hold legal title to the property.

The deed of trust is a security for a loan recorded in public records. A borrower may have to sign a deed of trust to get a home loan in some states, like the need for a borrower signs a mortgage in others.

However, it is important to note that deeds of trust differ from mortgages fundamentally. In contrast to a mortgage, a deed of trust requires the involvement of more people in the property sale.

 

Why Deeds of Trust?

In a deed of trust, the trustee, the beneficiary, and the trustor are all involved. This agreement gives the lender some recourse if you fail to repay the agreed-upon loan.

In a real estate transaction, a deed of trust involves three parties:

 

Trustor.

A trust holds assets for the beneficiary, known as the borrower (you). The trust will hold the title to your home until it has matured. If you continue to make payments following the terms outlined in the deed of trust, you remain the fair owner.

Even though you aren’t the legal owner, you still get all the benefits of homeownership, including the right to live there and the ability to gain equity.

 

Protect the beneficiary’s interest.

You protect the beneficiary’s interest, usually the lender, though it could also be a contract with a specific individual.

 

You must pay the trustee.

As a loan borrower, you must pay the trustee, usually a title company, while also paying off your loan. Once your loan is repaid, the trustee will dissolve the trust and transfer the title to you.

It’s up to the trustee to pay the lender the remaining balance of the property if you sell it before it’s paid off (you keep the profits). Defaulted on your mortgage, you are liable for selling the property if you fail to meet your payments and default on the mortgage.

 

Why are Deeds of Trust Necessary?

Those states that do not use mortgages can use a Deed as an alternative. Another option is available if a traditional bank or lender needs help providing the loan. It doesn’t matter if you’re using a Deed of Trust or a mortgage; both ensure repayment to their lender or borrower.

 

A comparison of deeds of trust and mortgages

Despite their similar purposes, some fundamental differences separate a deed of trust from a mortgage.

 

What is the significant difference between a trust deed and a mortgage?

Two documents differ significantly in the following areas:

 

Foreclosure type:

Depending on whether a property owner has a deed or mortgage, the foreclosure process will be either Nonjudicial or judicial. Mortgage foreclosures require judicial approval, while deed of trust foreclosures does not.

 

Expense and length of foreclosure process:

Because a lender must obtain judicial foreclosure to take back property with a mortgage, foreclosure proceedings usually cost more money and take longer.

Therefore, lenders who use mortgages often use deeds instead of mortgages in states that allow them. When a lender uses a deed of trust instead of a mortgage, reclaiming property will usually take less time and cost less.

 

Parties involved:

A mortgage contract involves only two parties, a borrower and a lender. On the other hand, a deed of trust includes a trustee, a neutral third party, and the borrower and lender.

 

Deeds and Mortgages: Similarities

Additionally, the two agreements share the following similarities:

 

Both agreements are distinct from loans:

Deeds of trust and mortgages are not home loans. A loan is an agreement by which a property owner will pay a lender a set amount of money while both place liens on the property.

 

Both agreements allow for foreclosure:

Deeds of trust and mortgages give lenders a means to reclaim a property via foreclosure. They allow the lender to take back the property should the borrower fail to comply with the loan terms.

 

State law dictates both types of agreements:

There are state laws governing mortgages and foreclosure deeds. A lender must use a contract that is legal in their state.

An ordinary mortgage consists of two parties, the borrower and the lender, while a deed of trust adds another party, the trustee, who holds the title until the loan is repaid. These two documents also have different foreclosure arrangements.

 

In What Does a Deed Include

 

 

Your deed of trust includes many details about your property, loan, etc. An average deed of trust includes the following:

• Involved parties (trustor, trustee, beneficiary)
• Amount and terms of the original loan
• The property’s legal description
• Dates of loan initiation and maturity
• Charges
• Acceleration clauses, alienation clauses, etc.

The acceleration clause in a deed of trust can trigger the immediate repayment of the loan if you are delinquent on loan. The alienation clause could trigger the acceleration clause.

The lender may give the borrower a few months to catch up on payments after just one missed payment, depending on the terms. Defaulting the acceleration clause will result in formal foreclosure proceedings if the outlined terms fail.

Alienation clauses are due-on-sale clauses that prevent anyone who buys a property from taking on the loan under the current terms. Instead, alienation clauses specify that you must repay the loan in full upon selling the property.

The deed of trust can include a power of sale clause, enabling your lender to initiate a foreclosure process much faster than if we need a judicial foreclosure. However, a power of sales clause does not mean you will be foreclosed on overnight.

The specific process varies by state and lender. However, a nonjudicial foreclosure can happen within months if you’re facing one. Hiring a lawyer if you wish to fight foreclosure formally is important.

 

Why Should You Use a Trust Deed Over a Mortgage?

A trust deed allows the lender to sell the property without going to court if the borrower defaults. Unlike a mortgage, a trust deed requires a lender to file a foreclosure claim in court and obtain approval from the judge to sell the property. The borrower and the lender may have to pay any fees for this.

As an investor, a trust deed also has advantages over a mortgage if you invest in real estate. The investor appears on the trust deed as the lender, so they are entitled to receive interest on their “loan.” Once the property has come up, the investor can recoup the principal in full.

 

Trust Deed vs. Warranty Deed

The title of a property can be transferred from one person to another with both a warranty deed and a deed of trust. One difference between the two contracts is the protection of the beneficiary (lender).

A warranty deed protects the owner, however. The buyer (the grantee) acquires ownership of the property when a warranty deed serves to transfer it.

As a result of the warranty deed, previous owners, or grantors, have full ownership of the property and a right to transfer it, so you are guaranteed that you will not inherit liens or future claims against it, which gives you peace of mind knowing you own the property outright.

You can earn passive income through trust deeds while also being protected through them as an investor. You cannot recoup your initial investment, though investing in real estate is unpredictable, and returns are never guaranteed.

 

Trust Deeds Questions You Might Have

It is common for borrowers to have questions about Deeds of Trust despite their similarity to mortgages. There are a lot of questions that borrowers tend to ask about these types of loans.

 

The role of the trustee in a Deed of Trust.

Deeds of Trust name a person who possesses legal title to property throughout the loan period. Trustees often have one of two roles. After the borrower makes any remaining payments on the loan, the trustee uses the proceeds from the sale to settle the outstanding loan balance with the lender.

 

Do Deeds of Trust and Titles Have the Same Meaning?

The Trust Deed and Title often go together when buying a home, but their meaning and purpose are fundamentally different. A Deed of Trust secures the loan on a property, while a Title is the actual owner of that property.

 

Do Deeds of Trust work for house sales?

Using a Deed to sell a home is possible, but you’ll need the lender’s permission if you sell it for less than what you owe.

Three main documents are important to note to close a deal using a Deed of Trust (although a few other documents are part of the process). Those are:

• A Deed
• Trust Deed
• Promissory Notes

Upon the sale of the house, the funds will pay off the beneficiary (the lender), and any remaining proceeds will be given to the borrower, just as they are with a mortgage. Trustees are responsible for ensuring that the funds flow properly. As we mentioned earlier, the trustee is also responsible for dissolving the trust at the end of the process.

 

What is the lifespan of a deed of trust?

Unlike a mortgage, a Deed of Trust has a full maturity date when the loan matures. Upon making the scheduled payments per the agreement, the borrower becomes the property owner.

 

Titles in Trusts: How to Do It

Buying a home can sometimes be overwhelming, regardless of whether you use a mortgage or a Deed of Trust. Having a clear understanding of how everything works is crucial.

This means you can feel confident in navigating the process, which means fewer stressors. You might consider holding the property in a trust after you become a homeowner.

Getting real estate in a Revocable Living Trust can be beneficial for several reasons. It has several advantages; first, it provides the protection you wouldn’t otherwise have, and second, it allows you to buy or sell your property exactly as you would if you were not in a trust.

• Avoiding probate through the use of trusts
• Defending yourself against creditors
• Tax savings through estate planning

 

How can a deed be used to sell a house?

In certain situations, you can sell your house for less than the amount owed on your loan. Once the house sells, the trustee uses the proceeds to pay the lender’s remaining balance. The borrower gets any money left over.

 

Bottom line

Having a home is an exciting experience, and knowing what to expect and having confidence in your abilities makes it easier to manage a stressful experience. It doesn’t matter whether you’re applying for a mortgage, paying off an existing loan, or getting a Deed; the more you know, the more effective your decisions will be.

Traditionally, putting your property into a trust was an expensive and stressful process. Today, online estate planning services, such as those offered by Attorney Real Estate Group, streamline and, more importantly, make it affordable.