A trust deed or a deed of trust is an instrument in writing that lays down the terms and conditions of a trust agreement. A trust deed is a contract entered into between a lender and a borrower to secure payment of the borrower's debt by transferring an interest in the borrower's land to a third party known as a trustee. Deeds of trust authorize the trustee to sell trust property if the borrower fails to pay the debt.
Parties to a deed of trust are:
- a borrower who gives the legal title of a real property to the trustee
- a lender or a beneficiary who gives the loan
- a trustee or a grantor who holds property for the benefit of the lender
There are different types of trust property deeds:
- Warranty deeds - a warranty deed transfers ownership free of liens.
- Grant deed - it transfers ownership with a guarantee that the property is not already transferred.
- Quitclaim deed - it transfers only the rights of a transferring party on the property.
A deed of trust is similar to a mortgage. However, in a mortgage there is an actual transfer of title to the lender, whereas title is not transferred in trust deed. Mortgages are generally related with loans secured on real estate.
Many jurisdictions allow second and third trust of deeds or mortgages. A second mortgage or trust deed is a mortgage that is second in priority to another mortgage. The lender of a second mortgage loan holds a junior security interest in the real property.
When a loan is paid in full, a lender can request the trustee to return property by reconveyance. This can be done with the help of a deed of reconveyance. A reconveyance deed is an instrument issued by a lender to a borrower where the lender officially certifies that s/he is releasing claim on the property. A reconveyance deed is also known as release of mortgage document or release of deed of trust document. When a loan is fully paid, a satisfaction of mortgage is recorded with the register of deeds in the county records.
If a loan is in default, a lender can file a notice of default. After issuing notice of default to the borrower, a trustee can commence foreclosure by power of sale. In a foreclosure sale by trustee or trustee's sale, the trustee auctions the property to the highest bidder. A transfer or sale of real estate is made by preparing and recording a trust transfer deed. After the sale, a borrower can buy back the property within a stipulated period by paying the auction price plus interest and other charges. This right is known as a right of redemption.
Lenders of mortgages or trust deeds can assign mortgages to other lenders. When an assignment of mortgage is made, the assignee gets all rights of the original lender. In order to provide a valid notice of assignment, the assignment must be in writing and recorded in the records of the county where the property is situated.
A sample deed for trust and a variety of other easily downloadable deed of trust forms are available on the US Legal Forms website.