Deed Of Trust: A Definition
When applying for a mortgage, the paperwork can seem never-ending. One of the pieces that may be relevant in your home closing is a deed of trust. If you’re in the market for a new home, understanding what a deed of trust is and how it works may help you during the home buying process.
What Is A Deed Of Trust?
A deed of trust is a legal document that secures a loan or debt to real property. It is used in place of a regular mortgage, which essentially promises repayment of the loan within a specified period of time. The deed of trust grants the lender (beneficiary) the right to sell the property if the borrower (trustor) fails to repay the loan. This type of deed is usually used in conjunction with a promissory note, which outlines the terms and conditions of the loan.
How Does A Deed Of Trust Work?
A deed of trust essentially occurs when three parties are involved: the borrower (trustor), lender (beneficiary) and trustee. The borrower (trustor) transfers the title of the property to a neutral third party, called a trustee. The lender (beneficiary) gives the trustor money and holds the right to collect repayment through foreclosure if necessary. This makes it easier for lenders to repossess homes when borrowers default on their loan payments.
In some cases, deeds of trust may also require the borrower to pay additional fees for services such as insurance, taxes and maintenance. Once the loan is repaid, the trustee will release the deed of trust and transfer ownership back to the borrower.
Deed Of Trust Vs. Mortgage
A deed of trust and a mortgage are both legal documents used to secure loans and debts to real property. While some people may refer to them as the same thing, they actually have significant differences.
The main difference between a deed of trust and a mortgage is who holds the title of the property during the loan repayment period. In a deed of trust, the title is transferred to a neutral third party (trustee) who holds the right to repossess the property. With a mortgage, however, the lender (beneficiary) holds onto the title of the property until all terms and conditions are met.
Deeds of trusts may also provide more flexibility for borrowers when it comes to paying back loans. For example, some deeds of trust may have provisions for partial payments and other special arrangements that mortgages do not typically offer.
Although both documents require borrowers to repay the loan on time, a deed of trust allows lenders to repossess the property more quickly and easily in cases of default. This makes it an attractive option for lenders looking to protect their investments.
Understanding how a deed of trust works can help you make an informed decision when it comes to purchasing a home or refinancing your loan. It’s important to know the difference between a deed of trust and a mortgage so that you can determine which is right for your situation.
Conclusion
A deed of trust is a legal document used in place of a traditional mortgage to secure repayment of a loan or debt. It involves three parties: the borrower, lender and trustee. The deed of trust grants the lender the right to sell the property if you fail to make payments on time. Make sure you understand what a deed of trust is before signing anything during your home buying process.
Having a solid understanding of what a deed of trust is can help you better prepare for the home buying process. Be sure to talk to a real estate professional or lawyer if you have any questions about deeds of trust and the legal implications that come with them. They can ensure that you get a fair deal and understand all the documents involved in your closing process.