Finance Instruments - Security

Question 1

What are the 2 ways in which a Trust Deed and Mortgage (contracts between the borrower and lender) differ?

Answer 1

1) the number of parties involved

2) the method of foreclosure

Question 2

How many parties are there to a Deed of Trust and who are they?

How many parties are there to a Mortgage and who are they?

Answer 2

Deed of Trust: 3

1) Borrower (Trustor) conveys title to a
2) Trustee (neutral 3rd party) for the benefit of the
3) Lender (Beneficiary)

Mortgage: 2

1) Borrower is the Mortgagor
2) Lender is the Mortgagee

Question 3

In a Deed of Trust who is the Trustor?

In a Mortgage who is the Mortgagor?

Answer 3

The Borrower in both

Question 4

In a Deed of Trust who is the lender?

In a Mortgage who is the lender?

Answer 4

Deed of Trust: the lender is the beneficiary

Mortgage: the lender is the mortgagee

Question 5

1) What does the Trustee do in a Deed of Trust?

2) How does title convey to the lender with a mortgage?

Answer 5

1) Holds the right of sale (naked legal title in title theory states) until the terms of the agreement between the Trustor and Beneficiary have been met.
2) Title conveys to the lender conditionally (i.e., only if funds are not repaid)

Question 6

How is it decided who will be the Trustee in a Deed of Trust?

Is there an alternative?

Answer 6

Trustee may be public, as in all of Colorado, where the governor appoints public trustee in most counties (in smaller counties, county treasurer may also serve as public trustee)

Alternatively, trust deed may specify a private trustee (in this rare case, trust deed must be foreclosed through the courts)

Question 7

1) How is Foreclosure done with a Deed of Trust?

2) How is foreclosure done with a Mortgage?

Answer 7

1) Deed of Trust: Through a fixed public trustee process
2) Mortgage: By Judicial Foreclosure (i.e., by lawsuit through courts. Usually requires an attorney, is more expensive, and is of uncertain duration when compared to public trustee process)

Question 8

1) When a Trustor completes payment (Deed of Trust situation):

A) What does the beneficiary do?
B) Then what does the public trustee do?

2) What does the Defeasance Clause do in a Mortgage?

Answer 8

1)
A) the beneficiary sends a release request to the public trustee along with cancelled note and trust deed
B) The Public Trustee issues a “Release of Deed of Trust” which should be recorded in the county clerk and recorder’s office

2) The Defeasance Clause automatically “defeats” the mortgage when paid. No release or quit-claim deed is required

Question 9

What are the 7 duties of a Borrower in a Security Instrument? (PPMMMLM)

Answer 9

1) Payment of the debt in accordance with the terms of the note
2) Payment of all real estate taxes on the property given as security
3) Maintenance of adequate insurance
4) Maintenance of the property in good repair at all times
5) Must not commit “waste” or remove any improvements
6) Lender authorization prior to making any major alterations to the property
7) Must allow lender reasonable access to inspect, if requested