A deed of trust is a legal document used in real estate transactions that serves the same purpose as a mortgage document but with some critical differences. It is a type of secured real estate transaction that some states use instead of mortgages. Here are some key points to understand about a deed of trust:
- A deed of trust is an agreement between a home buyer and a lender at the closing of a property. The agreement states that the home buyer will repay the home loan and the mortgage lender will hold the property’s legal title until the loan is paid in full.
- A deed of trust is a method of securing a real estate transaction that includes three parties: a lender, a borrower, and an independent third-party trustee.
- The lender gives the borrower the money to buy the home in exchange for one or more promissory notes, while the trustee holds the legal title to the property until the loan is paid off.
- The trustee is typically a title company, escrow company, or bank, which holds the property as collateral for the promissory notes. The equitable title, or the right to obtain full ownership, remains with the borrower, as does full use of and responsibility for the property.
- A deed of trust must include several pieces of information to be a legally binding document, including the original loan amount, a description of the property, names for all parties involved, the inception and maturity date of the loan, fees, what happens in case of mortgage default, riders, and more, depending on the nature of the sale.
- A deed of trust is often used when state law requires it or when a traditional lending service (like a bank) is not involved in the transaction.
- A deed of trust typically allows for foreclosure without the need to first obtain a court order, unlike a mortgage.
- A valid deed of trust must always involve three parties: the borrower (trustor), the lender (beneficiary), and the trustee.
- A warranty deed is a document required by some lenders before they approve financing. It certifies that the seller is the true owner of the property and has the right to sell it and that there are no outstanding debts.
In summary, a deed of trust is a legal document used in real estate transactions that involves three parties: a lender, a borrower, and an independent third-party trustee. It is a type of secured real estate transaction that some states use instead of mortgages.
