First in a series of articles
Q I plan to settle next week on a house I am buying. I contacted the title attorney who will be conducting my settlement and asked that I be allowed to review in advance all the papers that I will have to sign. The attorney was very cooperative, but advised me that many of the legal documents, especially those that come from the lender, may not arrive in his office until the morning of settlement. However, the attorney gave me a sample deed of trust for my review. This is a 15-page document, and I just cannot understand the legal language. Exactly what is a deed of trust?
AEssentially, it is your mortgage document.
My legal dictionary defines it as follows: "An instrument used in many states in place of a mortgage. Property is transferred to a trustee by a borrower (trustor), in favor of the lender (beneficiary), and reconveyed upon payment in full."
Although the laws on deeds of trust vary from state to state, here is a simplified explanation:
In the early days of mortgage lending, lenders used only a mortgage document. It was recorded among the land records, and if the borrower defaulted on the mortgage payments, the lender had to go to court to foreclose. From the lender's point of view, it was a time-consuming and expensive process.
Many years ago, some imaginative lawyer (or lender) conceived of the deed of trust. At settlement, the seller would convey the property by deed to the buyer. The buyer would simultaneously convey the property -- in trust -- to one or two trustees selected by the lender. In effect, legal title (in many states) would be transferred to these trustees. The trustees would hold the legal title until one of two events occurred:
The loan was paid in full. Then the trustees (usually at the expense of the borrower) would convey the property back to the borrower, and release the deed of trust from land records.
The loan went into default. Because the trustees owned the property, and the deed of trust contained language giving the trustees the power to sell the property upon a default, the trustees would arrange to have the property foreclosed upon by a private auctioneer (or the sheriff in some parts of the country, on the courthouse steps). If the borrower objected to the foreclosure, and believed there were legal defenses to the foreclosure, the burden to go to court to stop the foreclosure shifted to the borrower.
As you can see, a deed of trust is a very important document. It will usually contain such provisions as: