Deed of trust: A deed transferring the title of a home to a trustee, which holds it as security for a debt owed to the bank by a homeowner.
Deed of trust: A type of secured real-estate transaction that certain states use instead of mortgages, which usually involves a bank or lender, a homeowner or borrower, and a trustee. The bank gives the homeowner money in exchange for one or more promissory notes.
Deed of Trust: Transferring a Home to a Third Party
A deed of trust, an agreement between a mortgage lender and a homeowner, allows the mortgaged property to be transferred to a neutral third party who will serve as a trustee. The trustee will hold the property until the homeowner manages to pay off the debt.
During the repayment period, unless otherwise stated, the actual or equitable title to the property will remain with the homeowner, who is responsible for home. The trustee, though, will retain the legal title to the property.
The trustee is required to be a neutral party that is prepared to equitably sell the property if the homeowner defaults. Neutrality is key since the trustee should have no vested interest in benefitting either the bank or the homeowner.
A foreclosure sale executed under a deed of trust is not the same as a judicial foreclosure, which has limitations and repercussions, and requires supervision by the court. After the foreclosure sale, the trustee will transfer the profits to the bank, which may be the buyer, in order to satisfy the outstanding debt, and the remainder will be given to the homeowner.
The impartiality of a trustee can sometimes be called into question.
According to attorney Amy Loftsgordon, “State law typically requires trustees to act impartially in foreclosures, but because trustees have a financial incentive to keep lenders happy, they sometimes fail to return borrowers’ phone calls or acknowledge letters from borrowers—even if a borrower provides evidence of wrongdoing on the part of the lender.”
A deed of trust, however, does not obligate a homeowner to settle for a nonjudicial proceeding.
“if you’re up against a nonjudicial foreclosure and think you have a defense to the foreclosure, you’ll need to file your own lawsuit to get the issue before a judge. Because nonjudicial foreclosures are ordinarily much shorter than judicial ones, you need to start thinking about hiring a lawyer right away if you want to fight the foreclosure in court,” Loftsgordon says.