Deed of Trust Lawyers
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What Is a Deed of Trust?
A deed of trust is an agreement between a lender and a borrower to give property to a neutral third party who will then serve as a trustee. The trustee will hold onto the property until the borrower pays off the debt on the loan. During the loan repayment, the borrower keeps the actual or equitable title to the property and maintains full responsibility for the upkeep and maintenance of the property, unless expressly stated otherwise in the Deed of Trust Agreement.
Deeds of trust are not mortgages because unlike mortgages where everyone has interest in the property, under a deed of trust, the trustee is impartial.
How Does a Deed of Trust Work?
A lender will provide the borrower with a loan for some amount of money and in exchange the borrower gives the lender a promissory note. Using a trust deed, the borrower will then transfer their interest in real property to the 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 Are the Differences between a Mortgage and a Deed of Trust?
Mortgages and deeds of trust work in the same way in which they both are documents that pledge the property as a security for the loan and they both give the lender permission to foreclose on the property if the borrower does not make monthly payments on the loan.
The differences between a mortgage and a deed of trust is that they have different effects on the homeowner when foreclosure occur:
- Mortgages: Under a mortgage, the lender can foreclose on the property through a judicial foreclosure where the foreclosure process must go through the court system.
- Deeds of trust: The lender may foreclose on the property through a non-judicial foreclosure process that allows the lender to foreclose on the property without going through the court system.
- Impartial Trustee: In a mortgage, every party involved has interest in the outcome of the property, but in a deed of trust, the trustee is impartial.
- Number of Parties: A mortgage has just two parties involved: the borrower and the lender. In a deed of trust there is an additional third party called a "trustee".
What Is Power of Sale Foreclosure?
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. A power of sale provision in the deed of trust or mortgage that borrower authorizes the sale of property without any court intervention or judicial process to pay off the balance of the loan in case of a default. With a power of sale foreclosure, the lender can foreclose without going through court.
Since there are no judicial proceedings and a judge does not oversee foreclosures by power of sale, 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 states recognize deeds of trust. 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.
How Do I Determine If I Have Deeds of Trust or a Mortgage?
To find out whether you received a mortgage or a deed of trust when you took out the loan you can:
- Look at the documents that you received when you closed escrow on the property you took the loan out
- Call the company that you took out a mortgage and ask them what type of security you took out
- Go to your local county of records department and pull up the recorded documents
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 and represent you in court if necessary.
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Last Modified: 08-10-2017 09:22 AM PDT
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