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Deed of Trust

A deed of trust is an agreement at the closing of real estate, the parties to which are the buyer and the creditor. The document enters into force on the condition that one person borrows money as a loan from another for purchasing real estate. In practice, this means that the mortgage lender receives ownership of the property until the loan is fully repaid.

The actual content of the contract is to grant a third independent party the right of trust management of the property until the loan is repaid. At the same time, the borrower retains the right of ownership, that is, bears full responsibility for it and has the right to full use of the property. The trusted third party retains ownership until the borrower pays the debt in full. In this case, ownership of the property passes to the borrower. If the borrower defaults on the loan, the trustee receives full control over the property.

Key Features

When concluding a contract, three parties must be present:

  • A Creditor whose interests the trust must protect;
  • A Borrower — a person who establishes trust;
  • A Trustee — a third party who is granted the rights to manage the trust property until the loan or debt is fully repaid.

 The Main Components of the Trust Agreement

The text of the trust agreement must include the following points:

  • Information about the borrower, creditor, and trustee;
  • Name and description of the property transferred to the trust;
  • Information on restrictions on the use of property, which apply during the period of its stay in trust management;
  • Amount, monthly payment, interest rate, and other credit data;
  • Conditions that arise in case of late loan repayment terms.

Mortgage or Deed of Trust?

Deeds of trust are an acceptable alternative to mortgages. The specific features of the recovery procedure are as follows:

  •  According to the mortgage contract, the borrower has a legal right of redemption.
  • In turn, the trust agreement gives the creditor the right to collect the debt faster and cheaper, without going to court, according to the terms outlined in the trust agreement.
  • The property is put up for auction through a trust sale if the borrower does not repay the loan within the specified period.
  • The new owner receives the title from the trustee through a deed of trust after the sale.
  • Thus, after the sale of the property, the borrower loses the right of redemption.

There is a certain level of risk for creditors investing in trust documents. Unlike investing money in stocks, real estate investments are not liquid, so investors can’t demand the receipt of invested funds. The procedure does not involve additional capital growth, so investors can only count on the interest accrued on the loan.