Why is a Deed of Trust Different From a Mortgage?

The amount of paperwork home buyers sign at closing is astounding. Most of those documents will be generated by the buyer's lender. Without reading them and just signing, it can take buyers almost an hour to finish. Although, it is always advisable, even if it takes more time, for buyers to actually take time to read the documents and and to understand what they are signing.

What is a Deed of Trust?
*If you have never read a deed of trust, you might have questions about it. After all, it is the security for your loan. It is the document that is recorded in the public records.

A deed of trust contains three (3) parties:
*The Trustor, which is you, the borrower
*The Trustee, which is an entity that holds "bare or legal" title
*The Beneficiary, which is the lender

The deed of trust is an instrument that identifies the following:
*Original loan amount
*Legal description of the property being used as security for the mortgage
*The parties
*Inception and maturity date of the loan
*Provisions of the mortgage and requirements
*Late fees
*Legal procedures
*Acceleration (* Note 1) and alienation clauses (* Note 2)
*Riders, if any, regarding such clauses as prepayment penalties or terms of an adjustable
rate mortgage

What is a Trustee?
Because mortgages do not contain a trustee, many borrowers are confused between a mortgage and a deed of trust. Deeds of trust contain a trustee, an independent third party that does not represent the borrower nor the lender.

*The trustee is an entity, generally a title company, that holds the "Power of Sale" in the event of default.
*The trustee also reconveys the property once the deed of trust is paid in full.
*In the event of a default, the trustee files a Notice of Default; however, in most instances, the trustee will substitute another trustee to handle the foreclosure under a Substitution of Trustee.
*After the 90-day period in the public records, and a 21-day publication period in the newspaper, the trustee then has the power to sell the property on the courthouse steps without a court procedure.
*During the three months following recordation of the Notice of Default, the borrower can redeem the property by making up the back payments and paying the trustee's fees.
*Once the trustee sells the property at a Trustee's sale, it is final.

What is a Promissory Note?
*Whereas the deed of trust is security of the debt, secured by the property, the promissory note is secured by the deed of trust and is the evidence of the debt.
*The promissory note is a promise to pay, signed by the borrower in favor of the lender.
*It contains the terms of the loan such as the interest rate and payment obligations.
*The promissory note is generally not recorded.
*When the loan is paid, the promissory note is marked "paid in full" and returned to the borrower, along with a recorded Reconveyance Deed.
*During the term of the loan, the lender retains the promissory note.

Before Signing a Promissory Note and Deed of Trust you should always read both documents, including the pre-printed portions. You might ask the closer to send you a blank deed of trust and promissory note beforehand. Because preparers are human and can make mistakes, here are the important items to review:
*Spelling of trustors' names
*Principal balance of the loan
*Interest rate (and the rider, if adjustable)
*Payment amount
*Prepayment penalties, if any
*Address of property

*Notes:
1) "Acceleration Clause"

Definition: Language in a mortgage or trust deed allowing the lender to immediately call the loan due and payable upon certain events such as selling the property to another person without paying off the lender or making major alterations to the property without notifying the lender. TIP: While alienation clauses can accelerate a loan, not all loan accelerations are called due and payable because of an alienation.
Examples: An acceleration clause "accelerates" the loan balance.

2) "Alienation Clause"

Definition: Language in a mortgage or trust deed that allows the lender to call the loan immediately due and payable in the event the owner sells the property or transfers title to the property. Almost every loan today contains an alienation clause, which means title cannot transfer and a buyer cannot purchase subject to an existing loan without triggering a due on sale clause.

-->>I always welcome your thoughts, questions or comments after each blog posting.

You can visit my website at www.professionalnoterelief.com

I am a "Cash Flow Specialist", also referred to as a "Paper Asset Liquidation Specialist" and I deal with all types of financial notes. You can see a list of types of notes in my initial Blog Post found in the history legend on the left side of the screen. Myself and my collegues purchase cashflow notes, of all types. Upon closing of a cash flow, your cash payment would be sent to you through an Escrow process to insure the safety of all parties involved.

I will explain "Escrow" in a following Blog.

Have a Fantastic Day.