Trustee: A third party who holds property in trust until the homeowner makes the last payment.
Trustee: A trustee is a person or firm that holds and administers property for the benefit of a third party.
The Role of a Trustee in a Foreclosure Sale
In a mortgage, the bank holds the title to property until the loan is repaid. In a deed of trust, a third party, the trustee acts as a fiduciary with obligations to both the bank and the homeowner. The trustee holds the title to property, in accordance with the terms of the deed of trust, until the loan is liquidated.
According to Trevor B. Reid, a Virginia real estate attorney, “If you default, then the lender may direct the trustee to foreclose and sell the property at auction. The trustee will give notice to you by mail, and will advertise the sale in the newspaper. Generally speaking, the trustee is obligated to maximize the sale price for the property — for the benefit of both the lender and the property owner.
“Upon completion of the sale, the trustee pays the costs of sale and then applies the remaining proceeds to the balance of the loan. The title is then transferred or conveyed to the new purchaser. If the sale proceeds are insufficient to pay the loan in full, then the lender may seek to collect the remainder from the borrower. Less commonly, if the trustee has funds left over after paying the loan and the costs of the sale (including any other liens on the property), the surplus is returned to the borrower.”
In cases of foreclosure, having a trustee allows the bank to bypass the court system by following the procedures defined in the trust deed and relevant state law. This type of foreclosure is known as a non-judicial foreclosure or trustee’s sale. If the trustee oversees a foreclosure sale, the title will be delivered to the new owner by the trustee via a trustee’s deed. If no one bids at the trustee’s sale, the property will be given to the bank and the title will be transferred from the trustee to the bank via the trustee’s deed.
According to The Texas Real Estate Center, “The trustee may bid, but it is important to ascertain for whom the bids are entered. If the trustee is the mortgagee, all bids must be for the mortgagee. If the trustee is not the mortgagee, the trustee cannot bid the property either on his or her behalf or on the account of a corporation the trustee controls. However, the trustee may purchase the property in the name of a disinterested third party.
“If the mortgagee enters the highest bid, the mortgagee can acquire the property without any out-of-pocket costs as long as the bid price does not exceed the balance of the debt. The lender simply applies the purchase price as a credit against the mortgagor’s debt.”