Deed of Trust is essentially an agreement between a lender and a borrower to give the property to a neutral third party who will serve as a trustee. The trustee holds the property until the borrower pays off the debt. During the period of repayment, the borrower keeps the actual or equitable title to the property and maintains full responsibility for the premises, unless expressly stated otherwise in the Deed of Trust. The trustee, however, holds the legal title to the property. Deeds of Trust are not as common as they once were. Although they serve the same purpose as a land security agreement, these agreements are not the same as mortgages. In a traditional mortgage, everyone involved has an interest in the outcome. A Deed of Trust, by contrast, involves an impartial trustee. The trustee must be impartial in this arrangement because he must be prepared to sell the property to satisfy the debt if the borrower defaults. All states require that the trustee remains neutral to ensure that the trustee does not try to alter the price to benefit either the borrower or the lender. A foreclosure sale under a Deed of Trust does not have to follow the same procedures as a judicial foreclosure, which requires stricter parameters and a higher level of accountability; no judicial supervision is required for a foreclosure sale under a Deed of Trust in most states. Once the sale is complete, the trustee will distribute the proceeds between the borrower and the lender. The lender gets whatever funds are required to satisfy the debt, and the borrower receives anything in excess of that amount. This setup allows the lender to purchase the property, closing out the debt and satisfying all of the requirements of the deed. This is another detail that separates the Deed of Trust from a typical mortgage, since typical mortgages have specific legal requirements in addition to the sales.
This article contains general legal information and does not contain legal advice. Rocket Lawyer is not a law firm or a substitute for an attorney or law firm. The law is complex and changes often. For legal advice,
please ask a lawyer.
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