Deed of Trust
A deed of trust is a legal document used in some states as an alternative to a mortgage, where the borrower transfers legal title of the property to a neutral third party (trustee) who holds it as security for the loan. The trustee holds the title until the borrower pays off the loan in full, at which point the title transfers back to the borrower.
Example
“In California, lenders typically use a deed of trust rather than a mortgage, with a trustee holding legal title until the loan is paid off.”
Memory Tip
Remember 'deed of trust' involves three parties: borrower, lender, and trustee - the trustee holds the deed in trust like a referee.
Why It Matters
Deeds of trust typically allow for faster and less expensive foreclosure processes compared to traditional mortgages, making them attractive to lenders and affecting how quickly homeowners could lose their property in default situations.
Common Misconception
Borrowers often think they don't own their home when a deed of trust is involved, but they retain equitable ownership and all rights to use and occupy the property.
In Practice
In California, when Mike bought his home, he signed a deed of trust that named a title company as trustee, giving them temporary legal title while he maintained possession and ownership rights as long as he made his monthly payments.
Etymology
Combines 'deed' from Old English meaning 'act or action' with 'trust' from Old Norse, creating a document that holds title in trust for security.
Common Misspellings
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