Chapter 10 - Deed of Trust Flashcards
Deed of Trust
- Same as a mortgage
- Borrower (Trustor/Grantor)
- Lender (Beneficiary)
- Neutral 3rd party (Trustee)
- Borrower conveys title to the trustee, to be held in trust until the note is paid in full
Bare/Naked Title
Title that lacks the rights and privilege’s usually associated with ownership
- Title given to trustee
Reconveyance or Release Deed
A document used to re-convey title from the trustee back to the property owner once the debt is paid
Deed of Trust - Power of Sale Clause
Allows the trustee to sell the property without having to go to court
Trustee
- Escrow Company
- Title
- Bank (Trust Department)
- Trust
- Corporate trustee is preferred
- Must be neutral
Assignment of Rents
-Establishes the lender’s right to take possession and collect rents in the even of loan defaults
- Allows the lender the opportunity to preserve the value of the property until foreclosure sale takes place
Foreclosure
Lender can instruct trustee to sell property in the event of the borrowers default
Trustee Rules
1) Lender must demonstrate that there is a reason to cut off borrower’s interest in property
2) A notice of default must be filed with the public recorder
3) The notice of default must be followed by a 90-120 day waiting period before sale advertising begins
4) Advertising of foreclosure sale must occur for at least 3 weeks in public places
5) The sale itself must be a public auction held in the county where the property is located
6) The purchaser at the sale must be given a trustee’s deed conveying all title held by trustee
- All right rights, title & interest borrower had at the time he deeded the property to the trustee
Automatic Form or Trusteeship
- The trustee is not notified of appointment until called upon
- Faster & Easier
Accepted Form
- Trustee is notified in advance and can either accept or reject appointment
- Positive acceptance
Customary Security Instrument
- State law recognizes power of sale clause in deed of trust, but not in regular mortgage
- Statutory redemption period may be required for mortgages, but not for deed of trust
Advantages of a Deed of Trust
- If borrower defaults, lender can take possession to protect it and collect rent
- Time between default & foreclosure is short (90-120 days)
- Foreclosure process under power of sale is cheaper and less complex
- Title is already in the name of the trustee, allowing trustee to grant title to purchaser after foreclosure sale
- Once sale takes place, there is no statutory redemption period
- Loans are easier and less expensive for borrowers to obtain
When a deed of trust is recorded, bare title is conveyed by the
Borrower to the trustee
In order for a deed of trust to be cleared from the public records, what documents are delivered to the trustee?
Request for reconveryance and promissory note
What security instrument is the most common form of security for a loan on rea estate on a nationwide basis?
Mortgage
