A deed of trust is a legal document commonly used in lending real estate transactions where either the buyer or the seller wants to lend money to purchase an asset and then use their property as collateral to secure the loan. Even though most jurisdictions utilize a mortgage rather than a deed of trust, buyers and sellers should check their local laws to see which document applies. This, in particular, does not exempt lenders who are lending out the funds for the purchase.
The trustor (the party borrowing money), the beneficiary (the party lending money), and the trustee must work together to create a deed of trust. Until the trustor has entirely paid off the amount due to the beneficiary, the trustee retains title to the property. After the trustor’s debt is satisfied, the beneficiary authorizes the trustee to transfer the complete property title to the trustor.
If a borrower defaults, lenders prefer deeds of trust since they usually result in a less complicated foreclosure process. The lenders generally choose the trustee, which is typically a title business or a professional escrow entity. There are rules in some states that govern who can act as a trustee in a deed of trust. In the same way that working with a commercial lender allows the parties to choose a title company, escrow agency, real estate professional, or lawyer to meet this requirement, the parties may be able to do so as well.
Click the link below to read more on selecting a trustee for a deed of trust as a lender.
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