Often people commonly use the word Mortgage when they take a home loan. A true Mortgage however is much different from a ‘Note to a Deed of Trust’ which make up the majority of all home sales.
Mortgages typically deal with homes with 40+ more acres and were designed for Farm, Ranches and large Estates. That will be another article….. today we will touch on a ‘Note to a Deed of Trust’ . What is it? How typical is it? Why do banks use them’?
For real estate purchases, state law requires either a mortgage or a deed of trust to provide security for a home loan. In many ways, a deed of trust functions like a mortgage. However, one major difference between the two lies in who holds the legal title for the home while the loan is being paid. In a deed of trust, the legal title is held by the trustee, often an escrow company, while the equitable title is held by the borrower. Also, in a deed of trust, a foreclosure can be conducted outside of the courts, which is almost always faster and less costly than a judicial foreclosure.
A deed of trust secures repayment of the loan by placing a lien on the property. There are three parties to a deed of trust: the borrower, the lender, and a trustee. Some states permit both a deed of trust and mortgage, while others use just one or the other. A deed of trust is always used together with a promissory note, which is a contract that sets and controls the terms of the loan and repayment. The trust deed is simply a security instrument—without it, the note still creates indebtedness, but it is an unsecured debt. The money would still be owed, but a lender would not be able to force a sale in satisfaction of the note without going to court as an unsecured creditor.
When a note is secured by a deed of trust, it allows the loan holder to take back the property if the conditions for repayment aren’t met. Remember that with a deed of trust, this can be done without court proceedings. The deed of trust, not the note, is recorded with the county recorder in the county where the property is located and indexed in the public records.
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