Deed of trust definition - Posted by Dave T
Posted by Dave T on January 14, 2000 at 15:49:52:
Many people us the term “mortgage” without really knowing what it means. Mortgages are involved when real estate loans are made, but the mortgage is NOT the loan itself. You give a mortgage on your property to get a loan. When you borrow money to buy a property, you sign a promissory note in which you agree to make the payments as stipulated in the note – this is the actual loan.
A mortgage is a conveyance of certain property rights for the purpose of securing a loan. The mortgage gives the lender (called the mortgagee) certain rights if the borrower (called the mortgagor) defaults on loan payments. Upon default the mortgagee has the right to initiate foreclosure proceedings, which if taken to completion results in the property sold in a foreclosure and the proceeds used to pay off the remaining principal balance on the loan. Any excess proceeds go to the mortgagor.
As a benefit to lenders, about one-third of the states use a “trust deed” as a security instrument instead of a mortgage. While a mortgage has two parties (mortgagee and mortgagor), a trust deed has three: a borrower (called a trustor), a lender (called a beneficiary), and a neutral third party (called the trustee). The trustee conveys title back to the borrower when the debt is satisfied.
Under a trust deed, the forclosure process is usually both simpler and quicker, and it does not normally require court intervention. After a reinstatement period, which varies by state, the entire loan becomes due, and, after another waiting period, the property is sold by the trustee (hence the Trustee’s Sale at the courthouse). Funds in excess of the liens (if any) go to the borrower. The trustee’s sale is final, and the borrower has no further right to redeem the property – as he often does with a mortgage.
Hope this answers your question.