A Deed of Trust is essentially an agreement between a lender and a borrower to give the property to a neutral third party who will serve as a trustee. The trustee holds the property until the borrower pays off the debt.
Deed of Trust or “Trust Deed”, is the document that secures a loan on a piece of property. The Deed of Trust and the secured Note go hand-in-hand and the Deed of Trust is not valid without the Note. (Check our Notes page for all the basic facts).
There are two basic types of Deeds of Trust, the Long Form and the Short Form.
1) The Long Form, is the one used by institutional lenders.
2) The Short Form is the one that is most usually prepared by your Escrow Officer. The reason it is “Short” is because the clauses and conditions that appear as standard in the Long Form are incorporated in one document and recorded in all the California counties. By referencing the recorded instrument numbers on the document, the Short form assures that all the rights and obligations of the parties under law and as shown on the Long Form are preserved.
There are three parties, all of which have to be legal entities **, in a Deed of Trust drawn up according to California’s laws:
• The “Trustor” is the person who borrowed the money (the Payor of the Note)
• The “Beneficiary” is the person who is lending the money (the Payee of the Note)
• The “Trustee” is the neutral 3rd party who will issue the release of the loan once it is paid in full
Whichever type of Deed of Trust is being used there are certain requirements that must be incorporated into this instrument. It must identify the following:
1. Be in writing
2. Original loan amount that matches the amount on the Note(s)
3. Have a date that matches the date on the Note(s)
4. Legal description of the property being used as security for the mortgage
5. The parties to the instrument
6. Inception and maturity date of the loan
7. Provisions of the mortgage and requirements
8. Late fees
9. Legal procedures in the event of default
10. Riders, if any, regarding such clauses as prepayment penalties or terms of
an adjustable rate mortgage
11. Have an address for the Trustor for mailing notices in case of default
12. The instrument must be signed by the Trustor and notarized
If there are certain conditions that have been negotiated between parties and incorporated into the Note, some of them also have to appear on the Deed of Trust to give constructive notice.
• Due on sale clause – the loan must be paid in full if property transfers ownership
• Subordination clause – allows this loan to be subordinated to a new loan to be made in the future
• Partial Release provisions – partial reconveyance in the event of partial payoff
• Cross collaterization – for loans that are secured on more than one piece of property
** Legal entity – an entity whose existence is recognized under State and Federal laws.
Contact your Ticor Title Representative for more information!