Real estate transactions that involve financing will use the property as collateral for repayment of the loan. There are two basic documents that can be employed to establish the safety for your loana mortgage or deed of trust. Most states require a mortgage although some states, such as California, use a deed of trust. Mortgages and deed of trust differ in both language and the manner in which they can be employed to enforce payment of the loan in case of a default.
A legal mortgage only requires a borrower—the owner or purchaser of the home —along with a lender—a bank, credit union or other business or person providing financing. In order to have a legitimate deed of trust, three parties are necessary: a trustor, beneficiary and trustee. The trustor will signs the deed of trust and the heirs and trustee will be specifically identified in the record.
The trustor under a deed of trust is synonymous with a debtor under a mortgage—this is, the owner is using the property to secure payment of a loan or other duty, like the court appearance of a relative or friend who is released on a bail bond while awaiting trial. In order to be legitimate, the trustor must sign the deed of confidence in the presence of a notary public and file the record with the office for recording property records in the county where the land is located. The deed of trust then becomes a lien against the land.
Every deed of trust names a beneficiary who receives the action of trust in exchange for being provided some type of benefit to the trustor. The deed of trust will even recognize the basic terms necessary to fulfill the heirs ’s repayment requirements. In the case of a purchase money loan, then this includes the loan provisions, like the principal, interest rate, payment schedule and due date. In the instance of an obligation like a bail bond, the deed of trust would define the court proceeding and who is required to comply with the court’s order to appear for trial or other appearances.
A significant difference between a mortgage and deed of trust is the addition of a trustee in the deed of trust. Although the trustee is usually a title company or other expert trustee, it can be any individual or business entity agreed upon between the trustor and beneficiary. If the trustor is diligent in complying with the conditions of the deed of trust, the trustee will do nothing more than act as the holder of legal title to the property and, as such, doesn’t have an obligation to perform any particular actions. In states where deeds of trust are commonly used, title companies deliver preprinted deed of trust forms together with the title company’s name inserted as trustee.
Power of Sale
The vital difference between a mortgage and deed of trust is that the deed of trust contains the power of sale—that is the ability of the trustee to sell the property to pay back the loan or other duty without needing to go to court. If a debtor defaults on a mortgage, the lender must file a lawsuit to force the sale of the property to settle the debt. When a trustor defaults in performing any repayment conditions, the beneficiary has the right to instruct the trustee to sell the property, called a non-judicial foreclosure. This remedy is desirable since it can be completed in less time than a lawsuit and is less costly.