Deed of Trust


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Deed of Trust

A document that embodies the agreement between a lender and a borrower to transfer an interest in the borrower's land to a neutral third party, a trustee, to secure the payment of a debt by the borrower.

A deed of trust, also called a trust deed or a Potomac Mortgage, is used in some states in place of a mortgage, a transfer of interest in land by a mortgagor-borrower to a mortgagee-lender to secure the payment of the borrower's debt. Although a deed of trust serves the same purpose as a type of security, it differs from a mortgage. A deed of trust is an arrangement among three parties: the borrower, the lender, and an impartial trustee. In exchange for a loan of money from the lender, the borrower places legal title to real property in the hands of the trustee who holds it for the benefit of the lender, named in the deed as the beneficiary. The borrower retains equitable title to, and possession of, the property.

The terms of the deed provide that the transfer of legal title to the trustee will be void on the timely payment of the debt. If the borrower defaults in the payment of the debt, the trustee is empowered by the deed to sell the property and pay the lender the proceeds to satisfy the debt. Any surplus will be returned to the borrower.

The right of the trustee to sell the premises is called foreclosure by power of sale. It differs in several respects from the power of a mortgagee to sell mortgaged property upon default, which is called a judicial foreclosure. A foreclosure by power of sale is neither supervised nor confirmed by a court, unlike a judicial foreclosure. While the rights received by a purchaser at a foreclosure by power of sale are the same as those obtained at a judicial foreclosure, there is a practical difference. Since the sale has not been judicially approved, there is a greater possibility of litigation over title, thereby making title to the purchased premises less secure than one purchased at a judicial foreclosure. In addition, the lender may purchase the property for sale under the provisions of a deed of trust, since the neutral trustee conducts the sale. This is not the case in a foreclosure, unless contract or statute provides otherwise, since the mortgagee must act impartially in selling the property to satisfy the debt. Some mortgages may, however, provide for foreclosure by power of sale.

The procedure for a foreclosure by power of sale is regulated by statute, a characteristic shared by a judicial foreclosure. All interested parties must be given notice of the sale, which must be published in local newspapers, usually in the public notice columns, for a certain period of time as required by statute. The sale is usually open to the public to ensure that the property will be sold at its fair market value.

deed of trust

n. a document which pledges real property to secure a loan, used instead of a mortgage in Alaska, Arizona, California, Colorado, Georgia, Idaho, Illinois, Mississippi, Missouri, Montana, North Carolina, Texas, Virginia, and West Virginia. The property is deeded by the title holder (trustor) to a trustee (often a title or escrow company) which holds the title in trust for the beneficiary (the lender of the money). When the loan is fully paid, the trustor requests the trustee to return the title by reconveyance. If the loan becomes delinquent the beneficiary can file a notice of default and, if the loan is not brought current, can demand that the trustee begin foreclosure on the property so that the beneficiary may either be paid or obtain title. (See: mortgage, reconveyance, foreclosure)

References in periodicals archive ?
Where improvements are made to an existing improvement covered by a permanent loan deed of trust, the deed of trust will take priority over the mechanics liens.
We insured a first (refinancing) deed of trust for $441,500, against a home on Bursera Way in Palm Desert, California.
When MERS is the mortgagee, the mortgage or deed of trust is recorded, and all recording fees are paid.
The previously executed deed of trust conveyed essential government assets, consisting of the City Hall and Public Safety Building, to the deed of trust trustee and constituted a lien on those premises.
The 2006 COPs are further secured by a deed of trust granting a first lien of record on the middle school property for the benefit of the corporation.
The 'AA' rating on the 2006B COPs reflects that the projects included in the 1996 deed of trust are not part of a core governmental function, somewhat increasing appropriation risk.
As additional security for certificate holders, pursuant to a deed of trust the county conveys the middle school and the land on which it is located to the trustee for the benefit of the company.
The bonds will also be secured by a leasehold deed of trust and security agreement, granting a mortgage on FCEDA's leasehold interest in favor of the trustee.
According to the certificate documents, should this merger take place, the groundwater system will remain subject to the lien of the deed of trust for the benefit of certificate holders.
The bonds are additionally secured by a debt service reserve fund and a leasehold deed of trust, granting a mortgage on the EDA's leasehold interest in the courthouse.