Who Is a Trustee In a Deed Of Trust?

This article discusses everything you need to know about Deeds of Trust, what they are, how to use them, and who Is a Trustee in a Deed of Trust? How they differ from mortgages, and more.

 

Bit About a Trust Deed and a Trustee in a Deed of Trust.

In some states, this type of secured real estate transaction is used instead of a mortgage. The trust deed is a legally binding document that takes effect at the closing of a property. Property buyers and lenders negotiate this agreement, which outlines repayment terms.

Loans are safe by deeds of trust, which are recorded in public records. Some states need borrowers to sign deeds of trust to take out home loans, much like they need mortgages. However, there are some critical differences between deeds of trust and mortgages. Only a mortgage can be executed through the judicial system, while a deed of trust requires more people to participate in the sale.

Deed of Trust Trustees is the parties who hold title to the property during the loan period. Trustees are typically responsible for either the property’s management or maintenance. The trustee’s responsible for using the proceeds from the sale of the property for loan repayment, and the borrower must pay any remaining proceeds to the lender.

The trustee must dissolve the trust and transfer legal title to the new owner (the borrower) when the loan has been fully repaid (either before or at the end of the loan term).

 

Taking a Closer Look at Trust Deeds

Trust deeds are agreements between three parties:

• Beneficiaries, or lenders, are the interests a trust should protect.
• Borrowers are also known as trustors.
• A trustee is a third party holding entrusted property until the debt pays in full or a loan is repaid.

As part of a real estate transaction—such as buying a house—a lender offers money to the borrower in exchange for promissory notes secured by trust deeds, legal title to the real estate is transferred through this deed to an impartial trustee, usually a title company, an escrow company, or a bank, which holds it as collateral. Moreover, the borrower retains full ownership, complete control over and responsibility for the property, and equitable title.

The trustee is the property’s legal title owner until the borrower can fully pay the loan balance when that title is transferred to the creditor. The trustee holds this state of affairs throughout the loan repayment period. In the event of default on the loan, the trustee has complete control over the property.

The Deed of Trust can be an alternative to a mortgage in states where mortgages aren’t available. It can also serve as funding when traditional banks or lenders don’t provide funding for the loan. Whether you have a Deed of Trust or a mortgage, these tools guarantee you will repay your loan.

 

A Deed of Trust Transaction Involved Who Are the Parties?

Three parties will always be part of a Deed of Trust transaction – they will be:

• Lender (beneficiary)
• Trustors (borrowers)
• Third-Party trustee (the company that holds the legal title to the property)

Lenders benefit from Deeds of Trust because they protect their investments.

While legal title to a property resides in a Trust, borrowers retain fair title so long as payments remain on time and consistently. Therefore, they can live in the property and gain equity as they repay the loan.

When the borrower makes payments, the trustee retains legal title to the property for as long as the borrower keeps up with their payments. While serving as trustee, the trustee must remain impartial and not act in the borrower’s interests.

 

Mortgage vs. Trust Deed

Mortgages and deeds of trust serve similar purposes, but the two documents differ fundamentally.

 

Deeds of Trust and Mortgages: Differences and Similarities

In the two documents, the following differences are significant:

 

Foreclosure Type:

Nonjudicial foreclosures are more common for those who own a deed of trust, depending on the type of foreclosure a property owner faces. Lenders must go through the courts to foreclose for those who own a mortgage.

 

Expense and length of foreclosure process:

A mortgage loan typically takes more time and money to foreclosure because a lender must pursue judicial foreclosure to reclaim property. Consequently, mortgage lenders tend to use deeds of trust in states that allow them. A deed of trust will almost always save a lender time and money when reclaiming a property.

 

Parties involved:

An agreement between a borrower and a lender consists of two parties. Bonds involve a borrower, a lender, and a trustee; the third party is neutrally involved.

 

Deeds of Trust and Mortgages: Similarities

Furthermore, the two agreements share several significant similarities, such as:

 

Both agreements are distinct from loans:

Mortgages and deeds of trust are not home loans since a loan requires a property owner to repay a certain amount of money to a lender. However, both of them place liens on a property.

 

Both agreements allow for foreclosure:

Essentially, deeds of trust and mortgages give lenders a way to recover property through foreclosure. The lender can seize the property if a borrower does not follow the loan terms.

 

State law dictates both types of agreements:

A lender’s choice of contract will depend on what state law allows. Mortgages and foreclosure deeds are both subject to state law.

 

Promissory Note Versus Trust Deed

Unlike deeds of trust, promissory notes serve a particular purpose. While deeds of trust bind the borrower to the terms of debt, a promissory note symbolizes the borrower’s promise to pay.

Borrowers sign promissory notes on behalf of a lender. The promissory note specifies the loan terms, including the interest rate and payment obligations. Although promissory notes are usually separate documents, a deed of trust and a mortgage qualify as promissory notes.

The lender keeps a promissory note during the loan term, with a copy belonging to the borrower. A paid-in-full promissory note is given to the borrower with a recorded conveyance deed.

 

A Deed Of Trust Creates A Security Interest In The Property.

If we are to purchase a home without the help of a lender such as a bank or credit union, most of us do not have enough cash reserves. You are likely to have signed a deed of trust if you bought real property in Virginia with the help of a lender.

 

 

Although commonly used interchangeably, the terms ‘deed of trust and mortgage are two different documents. Like a mortgage, a deed of trust creates a security interest in the property when used almost exclusively in Virginia and many other states.

In the event of nonpayment, the lien entitles the lender to sell the property. Unlike a mortgage, this mysterious trustee is neither the lender nor the borrower. Why is this mysterious trustee (or it) involved in your deal?

A mortgage is a loan in which the lender holds title to the real property until it is repaid in full. An attorney or bank employee can be a trustee and a business entity.

 

Having the right to replace the trustee at any time

Despite being selected by the lender and having the right to replace the trustee at any time, the trustee represents neither you nor the lender. Instead, they act as fiduciaries who always serve both sides. The trustee holds title to your tangible property until the loan is repaid in full, following the provisions of the deed of trust.

The lender may instruct the trustee to foreclose your property and sell it at auction if you default. A trustee’s job is to maximize the property’s sale price for the benefit of both the lender and the owner. Usually, the trustee will notify you of the sale by mail and advertise it in the newspaper.

After the sale, the trustee pays the costs associated with the sale and applies the remaining proceeds to the loan balance. If the sale proceeds do not cover the loan amount, the lender may seek to collect the remainder from the borrower.

 

The title then passes to the new owner.

Occasionally, a trustee will return the surplus to the borrower after paying back the loan and the sale costs.

As soon as the lender repays your loan, you will receive a release of the deed of trust. This will result in the property’s lien release and the trustee’s obligations being met.

 

Are Mortgages the only Legal Form of Contract?

In some states, mortgages are the only legal form of contract; in others, lenders must use deeds of trust. In other states, neither type of contract is legal. These states allow the lender to choose the type of agreement a borrower receives. In some states, mortgages do not exist; instead, lenders receive a security interest in the property through other contracts such as security deeds.

It is crucial to consult with an experienced lawyer before signing any document since state laws vary about the type of document you may use. As part of your real estate transactions, a lawyer will also assist you in creating and using legally binding documents to protect you in your specific situation.

 

Questions Frequently Asked About Trust Deeds

Even though Deeds of Trust are similar to mortgages, many have questions about this type of loan. This article will review some of the most frequently asked queries that people with a mortgage ask about this kind of loan.

 

In a trust deed, who is the trustee?

Deeds of Trust Trustees are the parties who hold title to the property during the loan period. Trustees are typically responsible for either the property’s management or maintenance.

The trustee will repay the lender if the trustee sells the property before the loan expires. It is the borrower who receives any remaining proceeds.

The trustee must dissolve the trust and transfer legal title to the new owner (the borrower) when the loan has been fully repaid (either before or at the end of the loan term).

 

Do Trust Deeds and Titles Mean the Same Thing?

It’s common to hear the terms Deed of Trust and Title used when buying a home, but they have different meanings and functions. A Deed of Trust provides the loan on the home, while a Title provides the actual ownership of the home.

 

Do Deeds of Trust work for house sales?

We can use the Deed of Trust to sell a home, but you’ll have to get approval from your lender if you sell the home for less than your mortgage balance.

There are three primary documents you should keep in mind when closing with a Deed of Trust (there are actually other documents signed as parts of the process, but these three are the most important).

• A Deed
• A Deed of Trust
• A Promissory Note

The trustee’s responsible for ensuring the money reaches the right people, and any remaining proceeds will go to the borrower. A Trustee, like a mortgage lender, handles paying off the beneficiary (the lender). Also, to dissolve the trust, the trustee concludes the process, as we mentioned earlier.

 

Deeds of Trust: How Long Do They Last?

Like a mortgage, a Deed of Trust will have a maturity date to indicate when the borrower must make payments to pay off the loan entirely. If the borrower pays their payments on time, they will be granted title to the property.

 

The Process of Titling Property in a Trust

Buying a house can be daunting if you’re using the Deed of Trust or a mortgage. Having a clear understanding of how everything works is essential. After you become a homeowner, you may want to consider keeping your property in a trust to feel confident navigating it, thereby reducing stress.

Holding real estate within a Revocable Living Trust can be beneficial in several ways. It first provides the protection you would not otherwise get but allows you to purchase and sell your items just as you would without trust. Other advantages include:

• Avoiding probate
• Creditor protection
• Tax savings

 

The Bottom Line

A third party holds the title to a property or trustee rather than the lender or borrower. Trust deeds are an alternative to mortgages in certain states. The borrower will only receive the property once they have satisfied the terms of their debt to the lender.