Deed of Trust FAQ - United States


A Deed of Trustis a document where a borrower transfers the legal title for its property to a trustee who holds the property in trust as security for the payment of the debt to the lender. If the borrower pays the debt as agreed, the deed of trust becomes void and the lender executes a Deed of Reconveyance. If, however, the borrower defaults, the trustee may sell the property at a public sale under the terms of the deed of trust. In some jurisdictions, a mortgage is used instead of a deed of trust.
What is a Deed of Trust?

It is a security document where the borrower promises the lender to repay the loan and to ensure that takes place, the title of the property is conveyed to a neutral third party until the loan is paid in full.

Who is the Beneficiary?

The Beneficiary is the lender, the party lending the money.

Who is the Trustor

The Trustor is the borrower, the party using the property as security to secure a loan.

Who is the Trustee?

The Trustee is a neutral third party that holds the property in trust for the lender until the full balance of the loan is paid in full.

Who is the Guarantor?

The Guarantor is the person that is jointly liable for the loan if the Trustor defaults. This provides the lender more avenues to collect the loan should the borrower defaults and is unable to pay.

What is the Principal Amount?

The Principal Amount is the amount of the loan that is owed by the Trustor to the Beneficiary. Once the Trustor has begun to pay back the borrowed amount, the Principal Amount refers to the amount of money still owing to Beneficiary.

What is the Interest Adjustment Date?

The Interest Adjustment Date is the date that the loan term begins and interest starts to accumulate.

What is the Maturity Date?

The Maturity Date is the date when the final payment of the balance owing on the Deed of Trust becomes due.

What is annual prepayment of the Principal?

Typically in a Deed of Trust, one has to pay down the accrued interest prior to being allowed to pay down the Principal Amount. The annual prepayment of Principal option allows the Trustor to prepay a percentage of the Principal Amount each year before the payment is due. This has its advantages and disadvantages. It is a significant benefit to the Trustor as it reduces the total interest paid over the term of the Trust. Unfortunately, the Beneficiary will need to reinvest that prepaid money to continue to earn the same or similar interest income.

What is the difference between a Mortgage Agreement and a Deed of Trust?

Essentially both documents serve the same purpose; the borrower is using the property as security to acquire the lender’s loan. A mortgage creates a lien on the Mortgagor’s property and that serves as security for the loan. The mortgage is between the borrower and the lender. While in a Deed of Trust, a lien still exists and serves the same function; however, a third party called the Trustee is also involved. The neutral third party will hold the title temporary for the Beneficiary (the lender), until the loan is fully paid. Some common trustees are attorneys or title companies.

In addition, when the borrower defaults, the foreclosure differs. For mortgages, the lender needs to go through judicial foreclosure process which takes longer. However, some states do have non judicial foreclosures available even for mortgages. In the case of Deed of Trust, the lender can by pass the judicial process and utilize the power of sale to sell the property if the borrower defaults.

Which states use a Mortgage Agreement and which states use a Deed of Trust?

The following states use Mortgage Agreements: Alabama, Arkansas, Connecticut, Delaware, Florida, Hawaii, Indiana, Kansas, Kentucky, Louisiana, Massachusetts, Michigan, Minnesota, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Pennsylvania, Rhode Island, South Carolina, South Dakota, Vermont, and Wisconsin.

The following states use Deed of Trusts: Alaska, Arizona, California, District of Columbia, Georgia, Mississippi, Missouri, Nevada, North Carolina, and Virginia.

The following states may use either Mortgage Agreements or Deed of Trusts: Colorado, Idaho, Illinois, Iowa, Maryland, Montana, Nebraska, Oklahoma, Oregon, Tennessee, Texas, Utah, Wyoming, Washington, and West Virginia.

What is a Power of Sale clause?

This is a clause in the Deed of Trust that gives the Trustee the authority to foreclose and sell the property without any judicial process if the Trustor defaults. It is the Beneficiary and the Trustee’s responsibility to familiarize himself or herself of the state’s statutes to ensure proper notice for the process is in compliance. Property Information (Back to Top)

Where can I obtain the legal description of my property?

You should be able to obtain the complete legal description of your property from the County Recorder's Office by providing your municipal address or tax parcel number.

What type of information should be listed under "Further Description"?

You may include any information that further describes the property and its location. For example, you may include an attached floor plan of the house situated on the property, or diagrams demarcating the boundaries of the yard etc. This is not required but can be added merely to clarify what the property encompasses. Signing and Recording (Back to Top)

Why is there a large margin at the top of the Deed of Trust?

The County Recorder who will file the document requires a 2-3 inch margin at the top of the document so that they can affix a stamp, filing number or some other form of information to help identify and record the document. Do not write in this space.

I do not know when the Deed of Trust will be executed. Can I fill in the date later?

Yes, a blank space will be provided for you to fill the date later if you have not specified a signing date on the questions page.

Can I get my Deed of Trust notarized in a different state than where the property is located?

Most states recognize notarization of documents from other states, but you should contact the County Clerk's Office where the property is located to be sure that they will allow notarization from another state. Our Deed of Trust allows for inter-state notarization by enabling you to select in which state you will have the document notarized, regardless of the location of the property.

Does a Deed of Trust have to be notarized in order to be valid?

Yes, after the signing the Deed of Trust by the Trustor before a Notary Public, then it can be filed with the County Clerk's Office.

What do I do with the Deed of Trust after it has been signed by the parties and a Notary Public?

After the Deed of Trust is signed before the witnesses and notarized, it should be filed at the land records office in the county where the property is located. This office is referred to by different names in different states, but is usually called the County Clerk's Office, County Recorder's Office, Register of Deeds, or Land Registry Office.

After the Deed of Trust has been recorded at the County Recorder's Office, who should it be sent to?

The Trustor, Beneficiary, and Trustee should receive a copy of the Deed of Trust so that each party will know what kind of provisions and obligations are involved in the document.

 

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