Best Security = Tangible Real Estate
As Security, The Property’s Title is Transferred To The Trustee
A Trust Deed, also known as a Deed of Trust, is a legal document in which the borrower (trustor) transfers ownership of real property (House, Building, Land) to a trustee as security for a loan from the lender (beneficiary). This means that the borrower surrenders the legal title of the property to the trustee, who holds it as collateral for the debt. The Trust Deed serves as a written agreement between the borrower and lender, outlining the terms of the loan and the responsibilities of each party.
The trustee plays a key role in the Trust Deed process, as they hold the legal title to the property and are responsible for managing the transfer of ownership in the event of default or repayment of the loan.
Making It Official and Enforceable By Recording The Trust Deed
The recording of a Trust Deed serves a number of important purposes. First, it serves as evidence of the debt and the agreement between the borrower and lender.
By recording the Trust Deed in the county where the property is located, it becomes a matter of public record, providing transparency and accountability for all parties involved. This also serves as constructive notice to the public that the property has been encumbered, or pledged as security for the debt.
When the debt is fully paid, the lender is required by law to direct the trustee to transfer ownership of the property back to the borrower through a process known as reconveyance. This releases the property from its role as security for the debt and restores full ownership to the borrower.
Mortgages Vs. Trust Deed
One key difference between Trust Deeds and mortgages is the number of parties involved. A Trust Deed involves three parties: the borrower, the lender, and the trustee. The trustee holds legal title to the property as collateral for the loan.
In contrast, a mortgage only involves two parties: the borrower and the lender. The borrower retains ownership of the property, with the mortgage serving as a lien on the property until the debt is paid in full.
Faster Foreclosure Process For Quicker Recovery of Funds
One advantage of Trust Deeds is that they often have a faster foreclosure process compared to mortgages. If a borrower fails to repay or meet the terms of their loan, the lender can initiate foreclosure proceedings more quickly with a Trust Deed. This can result in lower foreclosure costs and increased certainty of recovering the principal, interest, and expenses associated with the foreclosure. In many instances, BCF may also recover the foreclosure costs and potential interest lost due to the non-payment. Trust Deeds may be particularly beneficial for lenders in this situation, as they can more quickly recover their investment and move on to new opportunities.
Judicial Vs. Non-Judicial States
In some states, including California, a nonjudicial foreclosure process is used for Trust Deeds. This means that the lender can initiate foreclosure proceedings without going to court, which can significantly shorten the timeline for the process.
Nonjudicial foreclosures can be completed in as little as five months and typically take less than a year to complete.
In contrast, judicial foreclosures are required to go through the state court system and are more common in states that use mortgages as the security instrument.
These foreclosures can take significantly longer, with some states (such as New Jersey, New York, Florida, Hawaii, and Illinois) taking up to three years to complete the process.
On average, these states have exceptionally long foreclosure timelines, ranging from 830 to 1,103 days.
Protect Against Uncertain Title Claims and Clouded Titles
Title insurance protects real estate owners and lenders against any property loss or damage they might experience because of liens, encumbrances, or defects in the title to the property. A title insurance policy insures against events that occurred in the past of the real estate property and the people who owned it, for a one-time premium paid at the close of the escrow. However, each title insurance policy is subject to specific terms, conditions, and exclusions. It is important to note that trust deed investing carries inherent risks, and investors should carefully evaluate the terms of any trust deed investment before making a decision. It may be helpful to consult with a financial professional to determine if trust deed investing is suitable for your investment objectives and risk tolerance.