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A different kind of deed

So yesterday The Legal Genealogist went through some basic kinds of land deeds to help a reader understand what to look for in the document to understand better what was going on in the underlying transaction.

StampRound2RedWe talked about warranty deeds and deeds of grant and quitclaim deeds.1

And, of course, as so often happens, there was one basic kind of land document that wasn’t explained — and it’s one that can leave people totally confused.

Because although it’s a deed, it’s not really a deed.

And it was reader Tonya Ferguson who was the one to raise the question: “In addition” to those other deeds, she asked, “can you explain how a deed of Trust works?”

Sure can.

But let’s be clear about one thing right off the bat.

A deed of trust really isn’t the same sort of beastie as those deeds we were talking about yesterday.

A deed of trust really is a variety of mortgage.

When somebody has to borrow money and uses land as security for the loan, the fact that the land is security has to be documented in some way.

Some states document it in a two-party document that’s usually just called a mortgage: it’s a written promise to pay the amount borrowed when it’s due and, if it isn’t paid, the lender can take the property in an action called foreclosure and sell it to recoup the money.2 If the lender has to foreclose, the lender usually has to go to court.

But some states document in a three-party document, the deed of trust. In this form of mortgage, the borrower actually transfers title to the land to a third party, the trustee, who holds title on behalf of the beneficiary — the lender, but it’s all conditional.

If the borrower meets the conditions — that is, pays the money — then the trustee transfers title back to the borrower.

If the borrower doesn’t meet the conditions, then the trustee can go ahead usually without any court action and sell the land, giving the money to the beneficiary, the lender.3

In both cases, possession of the land stays with the borrower, and all that’s being documented is the debt and the fact that the land is security for the debt. The deed of trust form just makes it easier for the lender if the borrower doesn’t pay what’s owed.

So think of a deed of trust as a mortgage, not really as a deed.


SOURCES

  1. Judy G. Russell, “A deed indeed,” The Legal Genealogist, posted 11 July 2016 (http://www.legalgenealogist.com/blog : accessed 12 July 2016).
  2. See generally Henry Campbell Black, A Dictionary of Law (St. Paul, Minn. : West, 1891), 789-790, “mortgage.”
  3. See generally Amy Loftsgordon, “What’s the Difference Between a Mortgage and Deed of Trust?,” Nolo.com (http://www.nolo.com/ : accessed 12 July 2016).
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