A Deed of Trust is an excellent way to secure finance, especially fixed property such as the family home.
However, if you are considering selling a house in a trust, it does not have to be the stuff of nightmares. Occasionally, a small amount of wise guidance can be sufficient to assist us.
A Deed of Trust is a legal document that secures a real estate transaction between a borrower and a lender, similar to a traditional mortgage agreement, by ensuring payment. A trust deed agreement also includes a third-party trustee. The third-party trustee is a neutral third party who holds the property title during the loan period.
There are specific procedures to follow to complete the sale. Unfortunately, It’s not just a case of using a real estate agent to find a buyer and signing the deed.
To make your life easier, we have compiled this article to help you know if you can still sell your house if you have a Deed of Trust and learn the process of selling it.
Can You Sell a House With a Deed of Trust
In a nutshell, yes, you can sell your home with a Deed of Trust. Bear in mind that just like in the case of a mortgage loan, if you sell the home for an amount less than the outstanding loan amount, you will require approval from the lender.
When you finalize the sale and closure of any property deal with a Deed of Trust, there are three important documents for you to note along with numerous other documents as part of the process. These three biggest documents to keep in mind are:
- The Trust Deed
- The Deed of Trust
- The Promissory Note
The appointed Trustee is responsible for ensuring the appropriate dispersion of the money. With similar processes to a mortgage, all funds from the sale of a house will first be used to pay off the loan amount outstanding to the beneficiary (the lender). It will also ensure that any remaining proceeds will then go to the borrower.
About a Deed of Trust
A Deed of Trust is a legal paper that assures a property transaction between a borrower and a lender. It outlines an agreement between the borrower, lender, and a third-party trustee.
As touched on briefly above, a Deed of Trust works by the lender giving money to the borrower for their home purchase. In exchange, the lender receives a promissory note from the borrower that guarantees repayment of the loan amount.
This promissory note will spell out all the details and terms of the loan. This includes the payment schedules, interest rates, and payment obligations. The third party, the Trustee, holds the Title Deed during the loan period.
An Alternate Loan
A Deed of Trust is an alternate means to work with a money-lender. Very often, prospective home buyers need help to go the mortgage route. A Deed of Trust may be the preferred way to manage a loan, depending on what state you reside in. A mortgage loan involves only two parties, the lender and the borrower, whereas three parties participate in a Deed of Trust.
With this in mind, it is important to understand how the Deed of Trust works.
What’s in a Deed of Trust
The Deed of Trust agreement outlines the specifics of how and when you’ll pay off the home loan. Basic details will include the following:
- The full loan amount
- The loan terms
- A legal description of the property.
- The names of all involved parties. The Neutral Third Party, borrower, and lender.
- Both the start and maturity dates for the loan.
- Loan provisions and requirements.
- Any late fee information.
Other items included may cover clauses that cover any possible default in payments, delinquency, and the eventual sale of the home.
It’s important to note that any prospective homeowner who takes out a loan to purchase a home does not have ownership of the property. They will own the equitable title. They can enjoy the property and benefit from any appreciation in the value of the home. Outright ownership only takes place once you have made all the required monthly payments. The borrowed money is eventually fully paid up with the lender.
The Title Deed is a document that is transferred from one party to another party. At the point of final payment, the property ownership is officially transferred. This is a legal process done through a deed. A title company will complete this process.
Who is the Trustee in a Deed of Trust
So who exactly is this Trustee? The Trustee is the person or legal entity named in the Trust to hold title to the property for the loan period legally.
The Trustee normally has one or two jobs to do:
- If the home sells before the loan is paid, the Trustee will use any proceeds from the sale to pay the lender the outstanding portion of the loan. The borrower is then paid out any remaining proceeds.
- When the loan is completely paid off, the Trustee is then responsible for dissolving the Trust and transferring the legal title over to the new owner.
The Trustee must remain impartial while serving their time and is not permitted to do anything that may benefit either the Trustor or the Beneficiaries of the Trust.
How Long Does a Deed of Trust Last?
As we learned above, the Trustee holds the legal title for the full loan period. The borrower, during this period, holds onto the equitable title for a property. This entitles them to the use and enjoyment of the home only as long as they make the required regular payments to the lender.
The length of a Deed of Trust is laid out in the agreement document. Just like any traditional mortgage loan, it will have a maturity date before making the last payment.
As long as the borrower is making the scheduled mortgage payments as per the agreement document, the loan remains in effect.
Do You Even Need a Deed of Trust?
When a buyer is not cash flush and wishes to finance the purchase of a home, they will sign either a mortgage agreement or a Deed of Trust, but never both. Mortgages are available in all 50 U.S. states, while a Deed of Trust is only available in some states.
So why will I need this? A Deed of Trust, although not quite the same, works similarly to a mortgage. It may oftentimes be easier for a buyer to get access to funds and be approved for a home loan using a Deed of Trust than a mortgage. Lenders usually prefer them since they offer far simpler foreclosure procedures in the event of any payment default by the borrower.
So the Deed of Trust has this crucial advantage over a mortgage from the lender’s point of view. If the borrower defaults on their loan, then the Trustee has the legal power to foreclose on the property on behalf of the beneficiary being the lender.
Differences Between a Deed of Trust vs. Mortgage
There are a few ways that Deeds of Trust differ from mortgages. Both are documented agreements that guarantee that a borrower will repay a loan.
The major difference between the two agreements is the handling of payment defaults. Traditionally with a mortgage, if a borrower fails to make promised payments, the lender would be responsible for initiating the process of foreclosing on the property. That foreclosure process would then need to be handled in court.
With a Deed of Trust agreement, the lender will go through a process known as Non-judicial foreclosure. Unlike a mortgage agreement, this allows lenders to foreclose property without first needing to go through the lengthy and time-consuming route of obtaining the necessary court order. Foreclosure allows the lender to seize the property, remove the homeowner, and sell the home to recover any outstanding debt.
Non-judicial foreclosure is, however, only available for Deeds of Trust with written power-of-sale clauses. As a result, the non-judicial foreclosure process is typically much faster and less costly for the lender to pursue.
Other differences are:
- Using mortgage loans in all states.
- A Deed of Trust is only available in certain states.
- A mortgage offers both the borrower and the lender equal interest in the home until such a time as the loan is completely paid off.
- The Trustee holds the legal title to the property.
Knowledge is Power
Even though all this information may seem a bit overwhelming, a little bit of research is essential for anyone making crucial and informed home purchasing and selling, estate planning, and deed of trust decisions.
Being armed and feeling confident in your knowledge makes any otherwise potentially stressful experiences just so much easier to manage. So, when it comes time to sell your home, a full and clear understanding of what your Deed of Trust agreement entails and your obligations will most certainly help you learn how to sell it.