A deed of trust is a legal contract between a lender and a homebuyer. Not only does it claim that you will repay the loan, but it also specifies that a third party known as the trustee will hold legal title to the property before you do.
A deed of trust, which is reported in public records, secures your loan. Borrowers will agree to sign a deed of trust if a state needs it to obtain a home loan, much like a mortgage in another state.
How Does It Work?
A beneficiary (the lender), a trustee (who holds a “valid” title) and a trustor (the borrower) are all represented in a deed of trust. Neither the borrower nor the lender are represented by the trustee. When a borrower defaults, the trustee is usually a person or a title company with a power of sale provision. Until the deed is paid in full, the trustee resells the land to the buyer.
If the creditor does not pay according to the promissory note’s terms, the trustee can file a notice of default. The trustee may also nominate a new trustee to oversee the foreclosure process. In most cases, this is done by filing a formal Replacement of Trustee.
Mortgage vs. Deed of Trust
You will either sign a deed of trust or a mortgage when you take out a loan to buy a house. Despite the fact that these terms are often used interchangeably, there are a few important differences to be aware of.
In the case of default, the trustee has the authority to sell the property without going through the courts. This is defined as nonjudicial foreclosure. It’s a significant distinction between a deed of trust and a mortgage, under which a bank would go through the legal system to begin a foreclosure.
After a certain period has elapsed since the notice of default was filed, the trustee will complete the foreclosure. After a nonjudicial foreclosure, some states offer a redemption period, during which the seller has time to buy back the house. Others authorize borrowers to request mediation before the start of the foreclosure phase.
Some states do not accept trust deeds. Some states permit mortgages or deeds of trust, while others permit both. To learn more about your legal options and requirements in your area, speak with a real estate attorney.
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