How and When To Use Deeds of Trust
A Deed of Trust, also known as a trust deed, is a document used in some states to secure a loan against real property. The parties involved in a Deed of Trust are the trustor (borrower), beneficiary (lender), and trustee (neutral third party). The trustee holds the property in trust until the loan is paid in full by the borrower.
Deeds of Trust are used instead of mortgages in certain states. They can make the foreclosure process faster and easier for lenders if the borrower defaults on their loan, as the property can be sold without a court proceeding.
Here’s when and how you might use a Deed of Trust:
1. Buying a Home or Other Real Estate: If you’re buying property and need to secure a loan, a Deed of Trust is often used in many states. The Deed of Trust is recorded in the county where the property is located, ensuring that the public record reflects the lender’s interest in the property.
2. Refinancing a Home: If you’re refinancing your mortgage, the original loan is paid off and a new Deed of Trust is created for the new loan.
3. Securing a Loan: If you are lending someone money to buy a home, you might use a Deed of Trust to secure your loan. This would give you the right to sell the property to recover your money if the borrower defaults on the loan.
4. Private or Seller Financing: Sometimes a property seller will agree to finance the buyer’s purchase. In this case, a Deed of Trust could be used to secure the seller’s interest in the property until the buyer pays off the loan.
To use a Deed of Trust:
- The borrower (Trustor) and lender (Beneficiary) agree on the terms of the loan.
- A neutral third party, the Trustee, is chosen. The Trustee should be someone who can impartially carry out the necessary duties if the borrower defaults.
- The Deed of Trust is drafted, including the legal description of the property, the amount of the loan, the terms of repayment, the Trustee’s and the Beneficiary’s names, and the borrower’s obligations. The document also includes a clause that allows the Trustee to sell the property if the borrower defaults on the loan.
- The Deed of Trust is signed by the borrower and notarized.
- The signed and notarized Deed of Trust is then recorded at the local county recorder’s office.
- The borrower makes payments according to the terms of the loan. If the borrower defaults, the Trustee can initiate a non-judicial foreclosure.
Remember that real estate laws and regulations can vary by state and even by local jurisdiction, so always consult with a knowledgeable real estate attorney or professional when dealing with real estate transactions and documents like a Deed of Trust.