Deed of Trust

A deed of trust is a legal instrument just like a mortgage. It is the transfer of lien to secure that an obligation or payment of debt is carried out. In most states both mortgage and the deed of trust are accepted. It is also called trust deed.

• A deed of trust also records a lien on your property like the mortgage and is also recorded in all public records including your credit report.



• A deed of trust unlike a mortgage has three main characters involved:
  
  
  
  • The borrower is called the 'trustor' who takes the loan.
  
  
  
  • The lender is called the 'beneficiary' who issues the loan.
  
  
  
  • The 'trustee' or the third party who holds the lien temporarily but not in totality. This could be either a title insurance company or escrow company. In some cases the attorneys act as trustees.
  
  


• The trustee has no bias, and so he works neither for the lender nor the borrower.



• The trustee holds the lien but he cannot do as he wishes with the property. The law restricts the rights of a trustee.



• The deed of trust is cancelled only when the loan is repaid within the set term.



• Only in the case of a default does the trustee come into action. The lender must first provide a proof that the borrower has become delinquent and cannot repay the mortgage. Only then does the trustee have the authority to sell off the property and recover the debt.



• In case of mortgage the foreclosure takes a long time because the lender needs a court order to foreclose. In case of a deed of trust, the trustee can take over the proceedings of a foreclosure bypassing the court.



• A trust deed has a huge market as an investment option, just like a mortgage.

Foreclosure in case of a deed of trust
A foreclosure via a deed of trust saves on both cost and time. It takes barely 3 months to complete the foreclosure as opposed to a long time for a mortgage foreclosure. When the lender understands that the borrower can no longer make the payments, he notifies the trustee. The lender then sends a letter to the borrower by certified mail with the intent to foreclose. The borrower can cure the debt within 11 days (this deadline may vary from state to state) of the date of sale of the property by the trustee.

The trustee puts the property on sale if the borrower fails to repay within the specified date. If the price received at sale exceeds the amount of loan debt, the rest is handed over to the borrower or other lien holders (in the case of a second or third mortgage).This foreclosure does not need the presence of the borrower.