Trust Deed Agreement Explanation and Procedure in the Year 2025
A home depot is not an estate planning tool like a living trust, which helps avoid probate. Instead, it is a lending contract used primarily in certain states to secure a home loan.
In a deed of trust, three parties are involved: the lender, the borrower, and a third-party trustee. The lender, also known as the beneficiary, provides the loan to the borrower, who is also known as the trustor. The trustee holds legal ownership of the property or a lien until the borrower repays the lender in full.
When a home buyer takes out a loan, they do not have the option to choose between a mortgage and a deed of trust, as the choice often depends on the state they live in. States such as California, Virginia, and Colorado primarily use deeds of trust, while states like Texas, Florida, and New York use both, with the choice sometimes depending on the county or lender preference.
The deed of trust document contains details such as the names of all involved parties, a description of the property, the original amount of the loan, loan inception and maturity dates, any fees or riders involved, what will happen in the event of loan default, and any other relevant details.
The main difference between a deed of trust and a mortgage lies in the number of parties involved and the type of foreclosure process. A deed of trust involves three parties, while a mortgage typically involves two. Deeds of trust generally can use a nonjudicial foreclosure process, while mortgages typically have to go through a judicial foreclosure.
An assignment of deed of trust grants the new loan purchaser all rights to the property and is recorded as public record along with the original deed of trust. If the borrower fails to make loan payments, the lender can discover the property.
Before a lender approves financing, they may require a warranty deed, a document that certifies that the seller is the true owner of the property, has the right to sell it, and that there are no outstanding debts, liens, judgments, or encumbrances on the property. Once the loan is paid off, the promissory note is marked 'paid in full' and the deed is returned to the buyer, making them the outright owner of the property.
In some states, home loans are colloquially referred to as 'mortgages,' although they may legally be deeds of trust. The trustee, which is typically a title company, holds legal title to the real property or just holds the lien in a deed of trust. A reconveyance in a deed of trust is a transfer of property (minus the lien) to the borrower from the trustee or the lender, happening when the borrower has paid off the loan and satisfied the terms of the debt. This reconveyance means the lender no longer has an interest in the property.
In summary, a deed of trust is a crucial aspect of homeownership in states that primarily use it. It is a lending contract that secures the loan and outlines the terms of the agreement, including the borrower's obligations and the consequences of default. Understanding the workings of a deed of trust is essential for any home buyer to ensure a smooth and successful home purchase.
