Deeds of trust are a critical tool used throughout real estate investing and financing to secure loans or debts with collateral property. However, if not properly drafted according to state laws or recorded correctly, deeds of trust can be rendered unenforceable or subordinate other interests. This guide provides real estate professionals, lenders, and borrowers expert insights on crafting enforceable deeds of trust and recording them properly to safeguard investments.
What Are Deeds of Trust and Why Are They Used?
A deed of trust—sometimes called a trust deed—is a legal instrument used as security for a loan or other debt by allowing real property to be used as collateral. The deed of trust differs from a traditional mortgage in that it involves three parties:
- Trustor – The borrower who owns the property being used as collateral.
- Trustee – A neutral third party who is granted legal title to the property and given powers to sell the property if the trustor defaults.
- Beneficiary – The lender who is providing the loan funds and receiving the security interest in the property.
With a deed of trust, the trustor technically conveys the property title to the trustee, while the beneficiary is given the repayment rights and can foreclose on the property if needed. The trustee acts as an intermediary who has the authority to take possession, record notices, and handle a sale process if the trustor fails to make loan payments.
For example, Anna signs a deed of trust when borrowing $300,000 from a bank to purchase a commercial property. Anna is the trustor, the bank is the beneficiary, and a title company could serve as the trustee. If Anna defaults, the trustee has the power to sell the property and repay the bank from the proceeds.
Deeds of trust provide several key advantages compared to traditional mortgages:
- Easier transfer of loans – Since legal title rests with the trustee not directly with the lender, deeds of trust allow loans to be sold more freely on the secondary market. The trustee remains the same even as the beneficiary can change when loans are bought and sold.
- Faster default remedies – Many states allow non-judicial foreclosure for deeds of trust, avoiding lengthy court proceedings required for mortgages defaults. The trustee can more quickly sell the property.
- Lower foreclosure costs – Without judicial proceedings, deeds of trust offer significantly lower foreclosure costs compared to mortgages.
For these reasons, deeds of trust are very commonly used in California, Texas, and other western states instead of traditional mortgages. However, mortgages remain more common in northeastern states like New York.
Crafting an Enforceable Deed of Trust: Key Provisions
While specific deed of trust laws can vary somewhat by state, there are fundamental provisions that must be included to create an enforceable security instrument:
Identification of Parties
The deed should clearly identify the full legal names of the three key parties:
- Trustor (property owner/borrower)
- Trustee
- Beneficiary (lender)
For example:
Trustor: John A. Smith
Trustee: ABC Title & Escrow Co.
Beneficiary: Business Loans Inc.
Having unambiguous identification of the three roles avoids any confusion over who is involved.
Legal Description of Property
An exhibit attached to the deed must fully legally describe the real property being used as collateral. This legal description is typically copied over from the property deed records.
For example:
Lot 27, Block 12, Smithville Township Subdivision, according to the plat recorded in Book 142 Page 59 of the public records of Jefferson County.
The property’s street address should also be included for added clarity.
Loan and Payment Details
Key specifics of the underlying loan that the deed of trust is securing should be spelled out:
- Original principal amount of the loan
- Interest rate and payment amounts
- Any balloon payments
- Loan maturity date or schedule of installments
For example:
This deed of trust secures a loan of $500,000 at 5% annual interest, with monthly payments of $2,400, balloon payment due January 1, 2030, and final maturity of January 1, 2040.
Conveyance and Granting Clause
The deed should contain key language conveying title from the trustor to the trustee, such as:
“Trustor hereby irrevocably grants, transfers, and assigns to Trustee, its successors and assigns, in Trust, with power of sale…”
This clause cements the collateral consequences of signing the deed.
Powers Granted to Trustee
The deed should spell out the powers and authority granted to the trustee, especially related to taking possession upon any default by the trustor. This includes language like:
“Upon any default by Trustor, Trustee shall have the power and authority to record a Notice of Default, to take possession of the secured property, and to sell the property in accordance with the laws of [State].”
Details of the trustee’s power of sale, auction requirements, notice periods, and other foreclosure procedures should be included.
Rights Granted to Beneficiary
The rights and remedies provided to the beneficiary (lender) should be enumerated, such as:
- The right to payments, proceeds, and rents from the property
- The right to accelerate debt obligations upon any event of default
- The right to insurance proceeds and eminent domain awards
- Broad security interest and lien rights in the collateral property
Obligations and Covenants of Trustor
The trustor’s duties and obligations to maintain the property and loan should be detailed, typically including:
- Duty to make all payments when due
- Responsibility to pay property taxes and maintain insurance
- Obligation to cover all fees/costs incurred by trustee related to a default
- Covenant not to commit waste or damage the property
Cure Provisions and Reinstatement Rights
Most states provide the trustor with certain cure rights if they defaulted due to missed payments but can promptly repay the delinquency. Standard deed of trust language will include:
“Trustor shall have a 90-day period to cure any monetary defaults before acceleration of debt and sale proceedings commence.”
This reinstatement provision is important to avoid unwarranted foreclosure.
Governing Law
The deed of trust should specify that the laws of the state where the real property is located govern the terms, rights, and enforcement provisions of the deed.
Signatures and Notarization
Original signatures from at least the trustor and beneficiary should be included, typically witnessed and notarized. The trustee may also sign accepting the powers and duties. Proper notarization is essential.
Troubleshooting Common Drafting Pitfalls
While the above outlines the core provisions, there are drafting pitfalls with deeds of trust that could render them ineffective or subordinate other interests:
Insufficient property descriptions – An inadequate legal description of the collateral property risks the deed of trust being voided as unenforceable. Double check accuracy.
Blank details – Leaving TBD blanks for dates, amounts, names, or other vital info can derail rights. Fill in all specifics before signing and recording.
Missing signatures – Ensure all required parties (trustor/beneficiary at minimum) provide original “wet ink” signatures on the same physical document.
Notary issues – Any notary errors, expired commissions, or failure to stamp signatures could invalidate the deed’s enforceability.
Incorrect fee calculations – Recording fees need to be accurately calculated based on factors like number of pages. Underpayment could cause rejection.
Waiting to record – Delaying sending the signed deed to be recorded risks losing priority to other intervening interests recorded sooner.
Unclear trustee duties – Ambiguity around the trustee’s powers and duties can impede default remedies. Spell out authority clearly.
Omitted reinstatement rights – Forgetting to include cure provisions could result in improperly accelerated foreclosure.
Incorrect governing law – Specifying the wrong state law could potentially invalidate provisions down the road.
Careful attention to detail and spotting these potential pitfalls before finalizing and recording a deed of trust is essential to ensure its enforceability.
Key Steps for Recording a Deed of Trust Correctly
Once a deed of trust is properly drafted and signed by the parties involved, recording the document is crucial to establish priority and provide constructive notice. Here are the key steps when recording a deed of trust:
1. Notarize All Signatures
Use an authorized notary public to verify and stamp the signatures of at least the trustor and beneficiary. Different states have varying notarial rules and requirements. Review notary regulations in your state and ensure compliance.
2. Obtain Full Legal Property Description
Have the complete legal description exhibit from the latest property deed records to attach to the deed of trust being recorded. Abbreviated or outdated descriptions could derail enforceability.
3. Fill In All Blanks
Before recording, carefully review the deed of trust and fill in any missing details or blanks, no matter how minor they may seem. Recording documents with TBD blanks could lead to rejection.
4. Make Copies
Make several copies of the completed original deed of trust to provide other parties involved for their records after recording.
5. Record with County Promptly
File the deed of trust in the public land records of the county where the real property is located, following that jurisdiction’s recording methods, fees, and requirements.
6. Verify and Distribute
The county recorder will return a file-endorsed copy showing proof of recording. Validate all information is accurate and distribute copies to the trustee and other parties.
Proper official recording provides constructive notice and establishes priority of interests. Any errors, delays, or lax procedures could upend rights down the road.
Alternatives to Deeds of Trust for Real Estate Collateral
While very commonly used, deeds of trust are not the only means of pledging real property as loan collateral. Here are some alternative arrangements that can also be used:
Mortgages – The traditional alternative creates a lien directly between borrower and lender without a third party trustee intermediary. Still used often in northeastern states.
Land contracts – Seller financing arrangement where title transfer to buyer occurs only once the full loan balance is paid.
UCC financing statements – Can create security interests in fixtures and equipment associated with real property.
Home equity lines of credit (HELOCs) – Revolving credit loan secured by available equity in the property.
Personal guaranty agreements – Third party promises repayment of debt if primary borrower defaults.
Memorandums of intent – Nonbinding preliminary document outlining proposed deal terms.
Depending on transaction circumstances and state laws, these alternatives can also accomplish the goal of pledging real estate collateral to secure financing. But deeds of trust remain a preferred and reliable instrument for most lenders.
Tips for Deeds of Trust Success
Drawing on my years of experience handling real estate collateral lending as an attorney, here are my top tips for ensuring deeds of trust are effective:
- Follow recording steps exactly – Don’t take shortcuts; precisely adhere to all notarization, fees, paperwork requirements.
- Know your state laws – Research specific state deed of trust statutes and cases to avoid violations.
- Record ASAP – Rush, don’t delay recording after signing, to establish priority over intervening interests.
- Verify property details – Scrutinize full legal description exhibit to confirm accuracy.
- Watch the formalities – Strictly follow required procedures – correct blanks, signatures, notary process.
- Review carefully before signing – Read the deed in full and resolve any questions before signing.
- Check trustee duties – Ensure the powers, rights and duties of trustee are clear.
- Deed first, then funds – Don’t release loan funds until deed is recorded and confirmed.
- Get title insurance – Insurer review often catches errors and provides coverage.
Key Takeaways on Deeds of Trust
Properly drafting enforceable deeds of trust and recording them cleanly is critical to secure real estate loans and investments. Key tips to remember:
- Know required deed provisions like descriptions, loan details, powers granted.
- Carefully avoid common drafting pitfalls that could derail enforceability.
- Strictly follow recording protocols – notarize, complete paperwork, pay fees.
- Research specific laws in your state; requirements vary.
- Add customary provisions like acceleration clause.
- Review closely and fix any blanks or mistakes before recording.
- Record immediately after signing to establish priority.
- Get experienced legal guidance to avoid problems.
With meticulous attention to detail and compliance at each step, deeds of trust provide reliable security. But flaws and sloppiness can render them worthless. Follow best practices to maximize enforceability and safely leverage real estate assets.
State-Specific Requirements
Here is an alphabetic list covering deed of trust specifics for all 50 states:
Alabama
- Must strictly follow statutory power of sale foreclosure procedures.
- Reinstatement period ends once foreclosure sale occurs.
- Deficiency judgments allowed but redemption option can limit.
Alaska
- Deeds of trust not used, only traditional mortgages.
- Mortgages require judicial foreclosure process.
- Foreclosures can be delayed due to homestead exemption protections.
Arizona
- Must record trustee’s deed after sale confirming completion of foreclosure process.
- Deficiency judgments not allowed for purchase money mortgages used as primary residence.
- Power of sale must require noticing all parties with interest in property.
- Reinstatement rights continue until final sale date.
Arkansas
- Statutory redemption period of 1 year after foreclosure sale.
- Deficiency judgments permitted unless property is primary residence.
- Must notify all subordinate lienholders of intent to foreclose.
California
- Deeds of trust widely used and generally preferred over mortgages.
- Can be structured as 2-party deeds of trust.
- Must expressly grant power of sale to beneficiary.
- Strict foreclosure procedures under California Civil Code §2924.
Colorado
- Public Trustee oversees power of sale foreclosure process.
- Notice periods strictly defined – min 75 days before sale.
- Reinstatement rights expire day before sale.
- Deficiency judgments not allowed for purchase money loans.
Connecticut
- Strict foreclosure method allows taking title without sale.
- Courts control process and set law days for redemption.
- No power of sale – judicial foreclosure required.
- No anti-deficiency protections for borrowers.
Delaware
- Foreclosures handled via civil lawsuits.
- Borrowers have 30 days to respond to complaint.
- Procedural missteps can invalidate foreclosure.
- Deficiency judgments permitted.
Florida
- 2 witnesses must sign deed of trust along with borrower/lender.
- Title insurer can serve as trustee.
- Must contain statutory balloon loan disclosure text.
- Reinstatement period only 60 days, not 90.
Georgia
- Security deeds are equivalent to deeds of trust.
- Non-judicial power of sale process fairly expedited.
- Confirmation of sale can lead to deficiency judgment.
- Borrowers can raise wrongful foreclosure defenses.
Hawaii
- Uses non-judicial foreclosure process.
- Must first conduct power of sale before suing on debt.
- Allows contesting a sale within 10 days for irregularities.
- Deficiencies rarely pursued given redemption rights.
Idaho
- Notice of default begins 3-month reinstatement window.
- Sale must be postponed if payment made day before sale.
- Rents can be collected after recording notice of default.
Illinois
- Judicial foreclosure required; no non-judicial process.
- Strict publication notice requirements.
- Redemption period for borrowers lasts 7-9 months.
- Deficiency judgments permitted but less common.
Indiana
- Statutory redemption period for 1 year after sale.
- Requires sending notice of sale to all with interest in property.
- Allows lender to collect rents after default notice sent.
Iowa
- Uses mortgage foreclosure without any deeds of trust.
- Allows reinstatement up until court judgment entered.
- Redemption period after sale depends on loan type.
- Anti-deficiency laws protect many homeowners.
Kansas
- Typically uses mortgages instead of deeds of trust.
- Seller financing deals often use deeds of trust.
- Allows continuing reinstatement rights before sale.
- Deficiency judgments restricted for purchase loans.
Kentucky
- Must strictly follow statutory foreclosure procedures.
- Allows reinstatement until sale is confirmed by court.
- Deficiency suits limited based on fair market valuation.
Louisiana
- Must obtain executory process order from court.
- Deficiency actions prohibited after non-judicial sale.
- Year-long reinstatement period after service of process.
Maine
- Judicial foreclosure required; no non-judicial process.
- Redemption period after sale is 90 days minimum.
- Allows recovery of deficiency judgment.
Maryland
- Statutory form of deed of trust must be used.
- Missed payments can trigger accelerated sale.
- Surplus sale funds beyond debt paid to borrower.
- No anti-deficiency protections for borrowers.
Massachusetts
- Uses standard mortgages requiring judicial process.
- Allows statutory power of sale clauses in mortgages.
- Borrower reinstatement rights continue past accelerating.
Michigan
- Must serve notice of housing counselor contacts.
- Allows loan modification agreements to bypass foreclosure.
- Redemption period after sale of 6 months minimum.
Minnesota
- Non-judicial foreclosure allowed but rarely used.
- Typical foreclosure method is lawsuit for judicial sale.
- Redemption period ranges from 6-12 months.
Mississippi
- Uses deeds of trust with power of sale.
- Allows reinstatement until 30 days before sale.
- Deficiency judgments allowed.
Missouri
- Uses deeds of trust more commonly than mortgages.
- Defaults accelerate loan after minimum 30 days.
- Allows recovery of any foreclosure costs deficiency.
Montana
- Must record notice of trustee’s sale.
- Sale must take place within 365 days after default.
- Deficiency judgment prohibited after non-judicial sale.
Nebraska
- Power of sale allowed after publishing notice 4+ weeks.
- Court petition method also available.
- Deficiency judgment permitted.
Nevada
- Only attorneys or title companies may serve as trustee.
- Remote online foreclosure auctions now allowed.
- No deficiency judgments for single-family residences.
- 90 day reinstatement window after notice default recorded.
New Hampshire
- Uses standard mortgage foreclosure process.
- Allows strict foreclosure instead of sale.
- Equitable right of redemption lasts minimum 6 months.
New Jersey
- Foreclosures handled through Superior Court.
- Provides redemption period before sale.
- Deficiency suits limited based on fair market value.
New Mexico
- Power of sale allowed after notice period ends.
- Deficiency judgments prohibited after foreclosure.
- Redemption rights for some loans if sold below value.
New York
- Judicial foreclosure required; mortgages used more than deeds of trust.
- Borrower retains title until court judgment.
- Deficiency judgment subject to fair value determination.
North Carolina
- Clerk of court conducts foreclosure sale.
- Upset bid process allows competing offers.
- Deficiency suits limited based on property fair value.
North Dakota
- Six month redemption period after foreclosure sale.
- Allows recovery of any deficiency balance after sale.
- Anti-deficiency law protects purchase money loans.
Ohio
- Uses mortgage foreclosure more commonly than deeds of trust.
- Private selling officer appointed by court.
- Redemption rights continue until sale confirmed.
Oklahoma
- Power of sale allowed after notice requirements met.
- No reinstatement rights once sale notice filed.
- Deficiency suits allowed.
Oregon
- Oregon Trust Deed Act governs notice, process, reinstatement.
- Sale must be held in county where property located.
- Power of sale deeds of trust widely recognized.
- 180 days to cure default after notice.
Pennsylvania
- Judicial foreclosure required for residential loans.
- But non-judicial process allowed for commercial deeds of trust.
- No reinstatement rights once complaint filed.
- Deficiency suits permitted but contestable.
Rhode Island
- Uses statutory power of sale process.
- Surplus proceeds beyond debt paid to borrower.
- Allows deficiency suits.
South Carolina
- Uses standard mortgage foreclosure process.
- Clerk of court conducts public foreclosure sale.
- Upset bid process allows competing offers after initial bid.
South Dakota
- Six month redemption period after sale.
- Allows recovery of deficiency judgment.
- Anti-deficiency laws protect purchase money loans.
Tennessee
- Reinstatement rights continue until 10 days before sale.
- Surplus proceeds paid to subordinate creditors/borrower.
- Deficiency suits allowed.
Texas
- Security instruments or deeds contain power of sale.
- Sale can be expedited after 21 days of missed payments.
- Deficiency suits permitted.
Utah
- Three month reinstatement window after notice of default.
- Online foreclosure auctions permitted if authorized.
- Deficiency suits allowed but have time limits.
Vermont
- Uses strict foreclosure method without a sale.
- Equitable redemption period lasts 6-12 months.
- Anti-deficiency laws protect most borrowers.
Virginia
- Power of sale process used after defaults.
- Deficiency suits barred for purchase money loans.
- Surplus proceeds paid to borrower.
Washington
- Requires giving notice of sale 120+ days in advance.
- Allows reinstatement up until 11 days before sale.
- Deficiency judgments prohibited after non-judicial sale.
West Virginia
- Uses deed of trust foreclosure process.
- Notice must be served on all lienholders.
- Borrowers can contest a sale within 10 days.
Wisconsin
- Rarely uses deeds of trust; standard mortgages predominant.
- Redemption period after sale lasts 6-12 months.
- Anti-deficiency laws protect many borrowers.
Wyoming
- Uses non-judicial foreclosure process.
- Up to 180 day reinstatement window after recording notice of intent to foreclose.
- Deficiency judgments permitted.
Frequently Asked Questions
What exactly is conveyed from trustor to trustee in a deed of trust?
The trustor legally conveys title to the real property to the trustee when signing a deed of trust. This transfer of title is what grants the trustee the power to foreclose on and sell the property if the trustor defaults on the loan.
However, the trustee does not have immediate rights to possess, use or profit from the property. The trustor retains possession and use. The trustee’s role is limited to 1) holding legal title as security for the loan and 2) taking action to sell the property if the trustor breaches the terms of the deed of trust.
So in summary, by signing the deed of trust, the trustor conveys full legal title to the property temporarily to the trustee solely for securing the debt, while retaining all other ownership rights until and unless foreclosure is triggered.
How does the order of recording deeds of trust impact priority rights?
The general rule is “first in time, first in right” – the earliest recorded interest has senior priority. If two deeds of trust are recorded against the same property, the beneficiary of the deed recorded first has senior claim against the property.
For example, if Lender A records its deed of trust on Monday securing a $100,000 loan, and then Lender B records its deed of trust on Tuesday against the same property securing a $75,000 loan, Lender A’s interest is senior.
If the property is foreclosed and sold, the proceeds go first towards paying off Lender A’s loan balance, and only any remaining balance would get applied to Lender B’s junior loan.
This demonstrates the importance of promptly recording deeds of trust after signing to gain priority over any subsequent interests or liens recorded against the same property. Tardiness in recording can subordinate a lender’s rights.
Can a deed of trust encumber multiple properties with a single filing?
While deeds of trust generally encumber a single property, it is possible to record a “blanket” deed of trust against multiple properties with a single instrument under certain conditions:
- The deed of trust must clearly identify and fully legally describe each property encumbered.
- The combined value of all properties must be definitively stated as less than the secured debt amount.
- All properties must be located within the same county for recording.
- Default and foreclosure provisions should clarify procedures involving multiple parcels.
However, blanket deeds of trust create complexities and are uncommon in most basic lending situations. Separate deeds of trust against each individual property is the simpler approach in nearly all cases.
What should I do if my deed of trust is rejected for recording?
If a recorder’s office rejects a deed of trust for filing and recording, remain calm but act swiftly. Find out the reason for rejection – often it is a fixable error like incorrect fee payment or formatting issue. Ask what steps are required to get the rejection cured and document recorded properly.
Be aware of any statutory time limits to re-submit after rejection. You may need to request the recorder use its discretion to accept a corrected version. Take the required steps ASAP and get legal counsel involved if needed to get your deed of trust officially recorded without losing your priority date. Don’t delay!
What exactly is conveyed from trustor to trustee in a deed of trust?
The trustor legally conveys title to the real property to the trustee when signing a deed of trust. This transfer of title is what grants the trustee the power to foreclose on and sell the property if the trustor defaults on the loan.
However, the trustee does not have immediate rights to possess, use or profit from the property. The trustor retains possession and use. The trustee’s role is limited to 1) holding legal title as security for the loan and 2) taking action to sell the property if the trustor breaches the terms of the deed of trust.
So in summary, by signing the deed of trust, the trustor conveys full legal title to the property temporarily to the trustee solely for securing the debt, while retaining all other ownership rights until and unless foreclosure is triggered.
How does the order of recording deeds of trust impact priority rights?
The general rule is “first in time, first in right” – the earliest recorded interest has senior priority. If two deeds of trust are recorded against the same property, the beneficiary of the deed recorded first has senior claim against the property.
For example, if Lender A records its deed of trust on Monday securing a $100,000 loan, and then Lender B records its deed of trust on Tuesday against the same property securing a $75,000 loan, Lender A’s interest is senior.
If the property is foreclosed and sold, the proceeds go first towards paying off Lender A’s loan balance, and only any remaining balance would get applied to Lender B’s junior loan.
This demonstrates the importance of promptly recording deeds of trust after signing to gain priority over any subsequent interests or liens recorded against the same property. Tardiness in recording can subordinate a lender’s rights.
Can a deed of trust encumber multiple properties with a single filing?
While deeds of trust generally encumber a single property, it is possible to record a “blanket” deed of trust against multiple properties with a single instrument under certain conditions:
- The deed of trust must clearly identify and fully legally describe each property encumbered.
- The combined value of all properties must be definitively stated as less than the secured debt amount.
- All properties must be located within the same county for recording.
- Default and foreclosure provisions should clarify procedures involving multiple parcels.
However, blanket deeds of trust create complexities and are uncommon in most basic lending situations. Separate deeds of trust against each individual property is the simpler approach in nearly all cases.
What should I do if my deed of trust is rejected for recording?
If a recorder’s office rejects a deed of trust for filing and recording, remain calm but act swiftly. Find out the reason for rejection – often it is a fixable error like incorrect fee payment or formatting issue. Ask what steps are required to get the rejection cured and document recorded properly.
Be aware of any statutory time limits to re-submit after rejection. You may need to request the recorder use its discretion to accept a corrected version. Take the required steps ASAP and get legal counsel involved if needed to get your deed of trust officially recorded without losing your priority date. Don’t delay!
What is the difference between a deed of trust and a mortgage?
The key difference is a deed of trust involves three parties (trustor, trustee, beneficiary), while a mortgage is strictly between two parties (mortgagor and mortgagee).
With a mortgage, the mortgagor grants a lien interest directly to the mortgagee. With a deed of trust, the trustor conveys legal title to the trustee, which is more advantageous for the lender. The trustee can foreclose on behalf of the beneficiary.
How long does it take to complete a non-judicial foreclosure on a deed of trust?
Non-judicial foreclosure timelines vary by state but generally range from 4-12 months from initial notice of default to auction sale completion. Key steps like notice requirements, publication periods, and reinstatement rights impact the timeline. For example, California typically sees about 4-6 month timeframes.
What options does a trustor have to delay foreclosure under a deed of trust?
The trustor can exercise reinstatement rights by curing any monetary defaults within the state-mandated cure period, often 90 days. They can also use court injunctions, bankruptcy automatic stays, and other legal tactics to temporarily halt the process while negotiating or pursuing alternatives. But the trustee will eventually be able to complete foreclosure.
Can I amend a deed of trust after it is recorded?
Yes, recorded deeds of trust can be amended with consent of the parties via a document called a “Deed of Trust Modification Agreement”. This must also be recorded to be effective. Common reasons to amend include changing payment terms, loan amount, interest rate, or maturity date. Strict formalities apply.
What alternatives allow a lender to foreclose besides a deed of trust?
If a mortgage is used instead, judicial foreclosure would be required. Other options include recording a judgment lien, executing a confession of judgment, or using a UCC Article 9 foreclosure for personal property fixtures on the real estate. But deeds of trust allow non-judicial foreclosure in many states.
Are there any federal laws that regulate deeds of trust and mortgage lending?
Yes, deeds of trust and mortgage loans are subject to several federal laws including RESPA, TILA, and Dodd-Frank lending reforms. These include requirements for disclosures, prohibitions on predatory lending, and consumer protections for homeowners against excessive fees or improper foreclosures.
What does the trustee actually do in the case of foreclosure under a deed of trust?
When foreclosure is initiated, the trustee will carry out several key tasks, including:
- Recording a Notice of Default indicating the trustor is in breach.
- Providing legally required notices to the trustor of the default status.
- Setting and advertising the date of the foreclosure sale auction.
- Conducting the public auction of the property on the courthouse steps or other designated place.
- Executing and recording documents to formalize the sale to the winning auction bidder.
- Collecting and distributing sale proceeds per lien priorities – paying off loans, fees, etc.
So the trustee handles the entire foreclosure and sale process on behalf of the beneficiary.
What clauses typically get included in deeds of trust that aren’t in mortgages?
Deeds of trust routinely contain certain provisions not found in mortgages such as:
- Granting the power of sale to the trustee.
- Allowing non-judicial foreclosure procedures.
- Listing out detailed duties and obligations of the trustee.
- Providing specific reinstatement and cure rights time periods.
- More extensive descriptions of remedies available to the beneficiary upon default.
These clauses are tailored to the three-party structure and process of deeds of trust.
Can I dispute or overturn a foreclosure that already occurred under a deed of trust?
It is very difficult to undo a completed foreclosure sale, but not impossible in some cases. Grounds for disputes include:
- Defective notice by the trustee – failure to receive required default warnings.
- Breach of reinstatement rights – not giving opportunity to timely cure default.
- Fraudulent documents or representations by the beneficiary to initiate foreclosure.
- Failure to follow state foreclosure procedures properly.
If legitimate errors deprived you of rights in the process, a court may be able to overturn the completed sale. Consult a real estate attorney.
How can I determine if a deed of trust lien still encumbers a property I’m interested in purchasing?
Request a title report from a title company, which will list all recorded liens against the property. You can also personally search real estate records and request a lien estoppel letter from the seller to uncover any existing debts secured by deeds of trust. Examine carefully.
What is an all-inclusive deed of trust?
An all-inclusive deed of trust includes a dragnet clause specifying that the deed secures not only the original loan debt, but also any future advances or obligations that may arise between the trustor and beneficiary. This gives the beneficiary broader security for additional debts.
Can I dispute the foreclosure process if the trustee does not act impartially?
Yes, the trustor can argue the trustee violated its legal duty to remain neutral if evidence clearly shows the trustee acted solely in the beneficiary’s interests or failed to provide fair notice and opportunity to cure the default prior to sale. This could potentially overturn the foreclosure.
What happens to junior lien holders when a senior deed of trust goes into default?
Junior lien holders can attempt to cure the senior loan default via reinstatement, step in to pay off the senior lien entirely, or exercise their redemption rights within a certain timeframe after foreclosure sale. If junior liens are wiped out, they retain deficiency claim rights.
Can a lender face penalties for wrongfully foreclosing on a deed of trust?
If a lender initiates foreclosure without proper cause or legal standing, or proceeds with sale in violation of reinstatement rights or state statutes, the trustor may have a claim for wrongful foreclosure, which can result in monetary damages or even reversal of the sale.
What options are available if my property is underwater and can’t sell for enough to pay off the deed of trust?
If the mortgage is underwater, options may include a short sale to sell and receive lender approval for less than the full balance, deed in lieu of foreclosure to voluntarily transfer title, or bankruptcy to eliminate some deficiency debt while surrendering the property.
