Deed of Trust Lawyers

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What is a Deed of Trust? 

A deed of trust is a type of security that pledges real property to secure a loan.  It is somewhat similar to a mortgage in that it provides security to a lender.  A deed of trust may sometimes be called a “trust deed” or “Potomac mortgage”.  However, deeds of trust are is much different form a mortgage in that three different parties are involved: the lender, the borrower, and a neutral trustee. 

How do Deeds of Trust work?

What happens is that a lender will provide the borrower with a loan for some amount of money.  Using a trust deed, the borrower will then transfer their interest in real property to the neutral trustee, who will hold the interest until the debt is repaid. 

When the loan is fully repaid, the borrower may then be able to get their title back from the trustee.  If the borrower misses payments or defaults on the loan, the lender can begin a foreclosure process on the property in order to obtain payment or title to the home.

What is “Foreclosure by Power of Sale”?

The deed of trust grants the third party trustee the right to sell the property in the event of default.  This is called “foreclosure by power of sale”.  This type of foreclosure is different in many respects from the foreclosure process associated with mortgages. 

For example, foreclosures by power of sale are generally not confirmed or supervised by a court.  In addition, the lender is allowed to purchase the property under the provisions contained in the trust deed. 

In contrast, a mortgage company usually cannot purchase the property in order to satisfy debts, as they are required to sell the property in an impartial manner.  Also, mortgage foreclosures are typically authorized by the courts, in which case it is called a judicial foreclosure.

Since foreclosures by power of sale are not overseen by a judge, there is greater potential for disputes over title resulting in litigation.  In other words, title to the property is somewhat less secure with a deed of trust than it is with a mortgage. 

Which States Allow Deeds of Trust?

Not all jurisidictions recognize deeds of trust.  Specifically, the states that allow deeds of trust are:  AL, AZ, CA, CO, GA, ID, IL, MI, MO, MN, NC, TX, VA, and WV.  You should check with your jurisdiction to determine what the law says about using a deed of trust.

On the other hand, there is considerable overlap between deeds of trust and mortgages.  Some mortgage contracts can contain provisions that are very similar to deeds of trust, and vice versa.  You may wish to consult with a lawyer to determine whether a deed of trust is appropriate for your property interests.

Do I need a Lawyer for Legal Issues with a Deed of Trust?

A deed of trust can be very useful, especially for borrowers who are seeking to regain title to the property in the future.  An experienced real estate lawyer can assist you with the various legal issues connected with a deed of trust.  For example, they can help you review the trust document to ensure that your interests are properly protected.  Or, in the event of a title dispute, your lawyer can represent you in court if necessary.

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Last Modified: 03-14-2013 01:42 PM PDT

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