In real estate trust deeds, also commonly referred to as a deed of trust is a document that transfers financial interest of a property to a trustee, whom holds the security for the loan between two other parties. The person that acquires the loan is referred to as a trustor while the opposite party is referred to as a beneficiary.
Basically, the trustor would be the person that is receiving the money for the property, while the beneficiary is the person that lends the money. Trust deeds are commonly recorded and placed into a file by the county recorder, however bear in mind that these deeds are considered a public document.
Once the loan amount that was borrowed has been rectified, the monetary claim on the title is then transferred to the borrower to release the debt obligation of the loan. If at any point while the loan is open the borrower defaults, the trustee has the authority to foreclose on the property or transfer the title back over to the lender. The trustee will also have the option to sell the property back to the lender if the borrower defaults on their loan arrangement.
Trust deeds are only used in certain states around the United States. You are likely to run across these deeds being used as an instrument for financing real estate in states such as: Arizona, Alaska, Colorado, California, Illinois, Idaho, Missouri, Mississippi, Montana, North Carolina, New Mexico, Texas, West Virginia and Virginia.
In other states trust deeds are simply referred to as mortgages, even though they are based off of the same principals. Trust deeds may also be used for loans where real estate is used as the main collateral in order to secure any contracts or different loan types.
Typically, trust deeds are commonly referred to as mortgages throughout the real estate business. Even though mortgages are seen to be a completely different legal instrument than trust deeds, there are still a vast amount of states that refer to these deeds as such.
There are three parties that are involved with a trust deed or deed of trust, whichever you prefer to call these financial instruments. The parties involved in the arrangement are the trustor, who is also the borrower of the loan, the beneficiary who is the lender of the funds and the mortgagor who is the borrower.
Normal mortgages only involve two parties, who are the borrower and the lender. The traditional rule concerning trust deeds is the first time is the right time. In order to understand this adage, please follow this example. Let’s say that there are three different trust deeds that have been taken out on one piece of real estate.
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The first deed was for $250,000 while the other two deeds were for $500,000. A party interested in purchasing the real estate submits a down payment of $150,000. The party that will be paid their funds first is the first trust deed for the property. So in this example the person who has taken out the deed for $250,000 will receive all of the funds of the down payment, while the other two trustees will have to wait for their funds. Obviously it is preferable to be the person that holds the first initial deed of trust on the property in comparison to the second or third trust recipient.