A Trust Deed is a document which is mandatory when a real estate transaction is involved in the US. It is through this deed that the legal title of a property is transferred from the borrower to the trustee. The lender treats this deed as security for the loan that he offers to the borrower. In the world of the trust deed, the borrower is known as the trustor and the lender is known as the beneficiary. Sometimes, a trust deed is also known as a deed of trust. The firm that takes care of the preparation of this document and handles the transfers of legal rights is known as a trust deed firm. Getting the help of a professional firm is very important if you want to avoid illegalities in this transaction.
Difference between Trust Deeds and Mortgage Loans
In a mortgage loan transaction, there are only two parties concerned – borrower and lender. In a transaction involving a trust deed, there are three parties involved – lender, borrower and trustee. The trustee will hold the property and the legal rights involved in the same, on behalf of the lender. Once the borrower has paid the loans fully, he takes back his property document from the trustee. For the lender, it is beneficial to get into a trust of deed agreement, because he can count on the trustee for any issues that may arise from the property. In a mortgage loan transaction, the title of the property is transferred to the lender directly.
The method of foreclosure is quite different for a mortgage loan and a trust deed transaction. In the former, the process is quite long and involves lots of communication back and forth from the lender to the borrower when a loan instalment is not paid. In the latter, when the borrower defaults on the loan instalment for the first time, the lender hands over the deed of trust to the trustee and asks him to initiate the proceedings to sell off the property. The trustee takes care of all the legal formalities, and he conducts a sale on his terms and disposes the property on behalf of the lender. In such a transaction, foreclosure is quick and doesn’t involve lengthy legal formalities.
When a trust deed is drafted, all the three parties concerned are present at the place where the document is prepared. However, in addition to this, the entire process is recorded or done in the presence of an experienced legal servant of that respective locality. This is to prove to the external world that the property in question is currently being used as security for a loan that the borrower has taken from the lender. Thus the borrower or trustee cannot use this property for any other purpose. Once the borrower has paid his loan in full, the beneficiary (lender) instructs the trustee to hand over the property back to the borrower. In some of the states in the US, the terms mortgage loan and trust deeds are still used interchangeably, because the basic mode of operation of both these transactions is quite similar.