A deed of trust is a document used in some US states to transfer the title of a property to a third party as security for a loan. It identifies the property, borrower, lender, loan amount, and due dates, and can be administered by a title company. If the borrower defaults, the trustee can foreclose on the property without going to court.
In the United States, a deed of trust (or a deed of trust) is evidence of debt. It is the record of the transfer of the title of a property to a third party to keep as security. It is a common method of financing your real estate in various states. It is also the registered document of title in the public records.
An instrument of trust identifies the legal description of the property, the borrower and lender, the loan amount, the loan inception, and the due dates. It also specifies late fees, prepayment penalties, adjustable or fixed interest rates, and any legal procedures or provisions and requirements.
While most states use a mortgage, states like California use a deed of trust. This deed establishes a trustee as the owner of the property until the obligation is paid in full. In other words, there is a tripartite system: the buyer of the property applying for the loan, the lender, and the servicer, who maintains the deed of trust in good faith for the lender and the borrower.
Often a title company is assigned as administrator. They will hold the document as collateral from the mortgage or loan company. When the property is paid for, the title company will release the deed of trust in the form of a deed of release. At that time, title is transferred to the buyer, marked “paid in full.”
The title company is a silent vehicle in most transactions and acts independently of the buyer or lender. Only if there is a default on the loan will they take an active roll. At that time, the servicer will file a Notice of Default, giving the borrower 90 days to pay any late payments and penalties. At the end of that time, and with a 21-day notice of publication in the newspaper, the servicer has the power to sell the property and use the proceeds to pay off the lender.
Although a deed of trust establishes the trustee’s title, the buyer still owns the rights and privileges of the property. The main difference between a mortgage and a deed of trust is that this document allows the trustee to foreclose on the property directly. They do not need to take the breach to court.
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