TRUST DEEDS / MORTGAGES
In Real Estate in the United States , a Deed of Trust or Trust Deed is a deed wherein legal title in real property is transferred to a trustee, which holds it as security for a loan (debt) between a borrower and lender. The equitable title remains with the borrower. The borrower is referred to as the Trustor, while the lender is referred to as the beneficiary.
Transactions involving Deeds of Trust are normally structured, at least in theory, so that the lender/beneficiary gives the borrower/ trustor the money to buy the property; the borrower/trustor tenders the money to the seller; the seller executes a grant deed givingthe property to the borrower/trustor; and the borrower trustor immediately executes a Deed of Trust giving the property to the trustee to be held in trust for the lender/beneficiary. In reality, an escrow holder is always used so that the transaction does not can be easily rescinded if one party is unable to complete its part of the deal.
Deeds of Trust differ from mortgages in that Deeds of Trust always involve three parties, where the third party holds the legal title, while in the context of mortgages, the mortgagor give legal title directly to the mortgagee. In either case, equitable title remains with the borrower. Both mortgages and Deeds of Trust are essentially essentially security instruments in the form of conveyances; that is, they appear to provide on their face for the conveyance is intended to merely create a security interest. This confusing situation is a legacy of the archaic common law requirement of livery of seisin, under which English common law courts had refused to enforce shifting fees or springing freehold interest.
A Deed of Trust is normally recorded with the recorder or county clerk for the county where the property is located as evidence of and security for the debt. The act of recording provides constructive notice to the world that the property has been encumbered. When the debt is fully paid, the beneficiary is required by law to promptly direct property has been encumbered. When the debt is fully paid, the beneficiary is required by law to promptly direct the trustee to transfer the property back to the trustor.
POWER OF SALE AND TRUSTEES SALE:
A Deed of Trust has a crucial advantage over a mortgage from the lender's point of view. If the borrower defaults on the loan, the trustee has the power to foreclose on the property on behalf of the beneficiary. In most U.S. states, a Deed of Trust can contain a special "Power of Sale" clause that permits the trustee to exercise these powers.
HERE IS THE STANDARD CONVEYANCE CLAUSE FROM A "FREDDIE MAC" uniform instrument.
"Borrower irrevocable grants and conveys to Trustee, in trust, with Power of Sale, the following described property"...
In the states that enforce Power of Sale clauses, the courts have uniformly held that by executing a Deed of Trust with a Power of Sale clause, the owner has authorized the trustee to conduct a nonjudicial foreclosure in the even of default. That is, unlike a mortgage, the lender need not sue the borrower in a state court; instead, the lender/beneficiary merely directs the trustee to mail (or serve, publish, or record) certain notices required by law, culminating in a "Trustee Sale" at which the trustee auctions the property to the highest bidder. The borrower's equitable title normally terminates automatically by operation of law at the Trustee Sale. The Trustee then issues a Deed conveying the legal and equitable statues or case law at the Trustee sale. The Trustee then issues a Deed conveying the legal and equitable title to the property in fee simple to the highest bidder. In turn, the successful bidder records the deed and becomes the owner of record. Thus, the advantage of Deed of Trust is that the lender can recover the value of the collateral for the loan much more quickly, and without the expense and uncertainly of suing the borrower, which is why lenders overwhelmingly prefer such Deeds to Mortgages.