What Is A Deed of Trust?
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A deed of trust is the mortgage document. It is recorded among the land records, and your lender will keep the original. When you pay off the loan, the lender will return it with the promissory note. This document is rather lengthy -- and quite legalistic. Make sure that the person conducting the settlement fully explains all of the ramifications and conditions contained in this document.
Basically, so long as you make your monthly payments on a timely basis, you should have nothing to worry about. But once you are in default (a term which is defined in both the note and the trust) then many of the provisions of that deed of trust become operative -- such as the right of the lender to ultimately foreclose on your property.
It should also be noted that you cannot deduct any mortgage interest for tax purposes unless your property is secured by a deed of trust. That means that the deed of trust must be recorded in land records. The deed of trust helps to verify and protect your legal interest in a property.
Parties to the Deed of Trust
There are three parties:
- Trustor – the Borrower
- Trustee – the holder of bare legal title. Holds the powers of sale if the borrower defaults.
- Beneficiary – the lender
Trust Deed or Mortgage?
Some states use a Trust Deed and others use a Mortgage. To determine which state uses a Deed of Trust or Mortgage, please refer to the following website.
Deed of Trust Document Should include:
- Original loan amount
- Legal description of the property
- The parties
- Inception and maturity Dates of the loan
- Provisions and requirements of the loan
- Late Fees definition and amount
- Legal procedures
- Acceleration and Alienation clauses
- Riders, which could include prepayment penalties
A trustee often uses a trust deed, for example, in bankruptcy. The Deed of Trust is a complicated document. It is suggested you consult a Real Estate Attorney before signing a trust deed or mortgage.
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