Deeds of Trust Explained

Answer 1

A deed of trust is a legal document often used during a home purchase. Most people are familiar with a mortgage, but not as many have heard of a deed of trust. Mortgages and deeds of trust are similar in that they are both used to provide security for a loan. However, a deed of trust is different because there are three parties involved whereas when a mortgage is used, only two parties are involved.

The three parties involved in a deed of trust are the trustor, the trustee, and the beneficiary. The trustor is the person who is borrowing money to make the purchase, the trustee is the entity that holds the legal title to the property, and the beneficiary is the bank or other entity that is lending the money for the purchase. This differs from a mortgage because in the case of a mortgage, the lender also holds the title to the property until is has been paid in full.

When a deed of trust is used, it is recorded with the County Recorder and is used to prove evidence that the property is being used as collateral until the loan terms are met by the borrower. When the borrower pays the loan in full, the title is then transferred back to the borrower. This happens in a process called reconveyance.

However, in instances when a borrower does not meet their financial obligations, the trustee has the right to file a Notice of Default against the trustor, or borrower. When this happens, the borrower typically has a set period of time to cure the default by catching up on his payments. The time allowed depends on the state in which the deed of trust was filed. Should a borrower not cure the default, the trustee can begin foreclosure proceedings against the borrower. In the case of a deed of trust, many borrowers will opt to surrender the trust deed as opposed to going through foreclosure proceedings. This is typically referred to as a deed in lieu.

A deed of trust contains a large amount of legal information. Some of the information that is typically part of a deed of trust document includes the loan amount, a legal description of the property, names of all involved parties, the provisions of the mortgage, the requirements of all parties, legal procedures to be used if a party does not comply with the trust deed, and a number of clauses and riders that pertain to the trust deed.

Deeds of trust are complex legal documents and people who are using them in the purchase of a home or other property should take care to read them carefully and to be sure they understand what they are agreeing to before entering into a legally binding agreement.