LegalNature's deed of trust form allows you to quickly and easily customize a deed of trust that clarifies the rights and responsibilities of all parties. This help guide explains the various options and considerations when completing the agreement and provides a brief description of the key sections of the agreement.
When completing the form you will need to provide the name and address of each of the parties involved. Enter the details for the borrower, guarantor (if any), and lender. You may include more than one of any of these parties as needed.
Deeds of trust usually need to be recorded with the appropriate government division, usually the County Recorder's Office. The top of the form is used to indicate specific recording information. This includes the party responsible for preparing the agreement, the party requesting that it be recorded, and the party designated to receive confirmation and other information back from the recording office.
In the first substantive paragraph of your agreement, the borrower grants the lender title to the property as security for repayment of the property loan. This means the borrower must repay in full or the lender will be able to foreclose on the property and take complete ownership.
In this section you will enter one or more legal descriptions of the property. If you do not have the legal property description already, you can find it easily by contacting your county Register or Recorder of Deeds (by phone or online) and providing the property address or tax parcel number. You can also try looking at previously-recorded deeds, tax assessments, websites such as Zillow.com, your land title, or asking a licensed real estate attorney for help. Including multiple legal descriptions is recommended, if possible, in order to clearly identify the property.
This section provides an overview of the terms of repayment as specified in the promissory note for the loan. The terms specified here are for reference purposes only and will not modify the terms of the note. You can think of the difference between the promissory note and the deed of trust in that a deed of trust is a promise to give the property title to the lender if the borrower does not repay, while the promissory note spells out the specific terms of repayment (i.e. principal, interest, important dates, and penalties).
Here, the borrower promises that it owns true and proper title the property and has the right to convey the title to the lender. The borrower agrees to defend its property title against claims by third parties.
The borrower promises to repay the lender on time and in full, including any associate fees and penalties. The borrower may not make set-offs (deductions) on repayment for items the borrower believes the lender owes. The lender is not obligated to accept a partial payment from the borrower—for instance, a payment less than the monthly amount owed—and by accepting a partial payment, the lender does not become obligated to accept more partial payments in the future.
Escrow charges are certain items that the borrower is legally obligated to repay before repaying the promissory note. This means they have legal priority. Examples include real estate taxes and property insurance premiums. In order to protect its interest in the property and ensure that these are paid on time, the lender will require these to be paid along with the regular loan payment.
The borrower is responsible for notifying the lender if it becomes delinquent in paying escrow charges. Unless one of the exceptions specified in this section applies, the borrower must also discharge—meaning, repay and fully satisfy—any liens with priority over the deed of trust. The best example is a prior security agreement against the property.
RESPA, or the Real Estate Settlement Procedures Act, is a federal law that prohibits lenders from charging unreasonable fees and requires them to provide borrowers with timely and accurate disclosures about the nature of the costs associated with the settlement process. This section is meant to ensure that the lender is held accountable for abiding by the requirements of RESPA.
You have the option of allowing prepayment of the loan when creating this agreement. If allowed, the borrower may prepay amounts greater than what is owed by the due date without incurring a penalty. However, making such payments will never relieve the borrower from its obligation to at least meet its minimum regular payment each period.
You have the option of including one or more guarantors when creating this agreement. A guarantor agrees to make payments on behalf of the borrower if the borrower is ever unable to meets its repayment obligations.
This section gives the lender the option of requiring the borrower to maintain property insurance during the term of repayment, including fire, flood, earthquake, and hazard insurances. The borrower will be required to notify both the lender and the insurer of any insurance claims on the property. If the borrower fails to do so when required, the lender may pay for the insurance itself and add those costs to the borrower's debt under this agreement.
If you choose to include this section when customizing your agreement, the lender will have the option of requiring the borrower to maintain mortgage insurance. Mortgage insurance will reimburse the lender for any missed payments by the borrower, but will not relieve the borrower from its obligations under the agreement.
This section identifies the many ways that the borrower may default on its obligations under the agreement. Most importantly, the borrower must meet all its payment obligations on time and in full. A violation of any terms of the agreement is also an event of default. Other common ways to default include the borrower giving false or misleading information to induce the lender to enter into this agreement or if the borrower defaults on another lien on the property or incurs additional liens without the lender's consent.
In the event of a default, this section requires the lender to immediately notify the borrower of the default. If the default can be cured by the borrower, the borrower will be required to do so within the timeframe given by the lender. If the borrower fails to cure the default on time, then the lender has the right to accelerate all payments under the agreement. This means that all outstanding money owed becomes immediately due. Should the borrower fail to pay all money owed, then the lender may pursue its legal options for enforcing the agreement, possibly including foreclosing on the property.
The borrower agrees that the lender may sell its interest in the promissory note and deed of trust without providing the borrower with prior notice. In this event, the borrower must also receive the name and address of any new servicer and any information required under RESPA. Any new servicer will still be required to abide by the terms of the promissory note and deed of trust.
In the event of a default on the agreement, the lender may choose to foreclose on the property and sell the property without going through formal court proceedings. Under this process, the lender must notify the borrower of its choice to sell the property. The lender then typically circulates an advertisement in a local newspaper for the property and sells it to the highest bidder. The lender may also purchase the property itself at the auction.
As opposed to the method described above, the lender also has the option to pursue foreclosure through the court system if permitted by the applicable law.
To execute the agreement, the parties simply sign and date it in the presence of a notary or witnesses. Most states just require one notary to act as a witness; however, two witnesses are always required to sign deeds of trust in Connecticut, Florida, Louisiana, and South Carolina. These states allow a notary to sign in the place of one of the witnesses. Note, in ANY state, lenders can still choose to require two witnesses to sign. The main requirements for witnesses are that they are aged 18 years or older and are disinterested from the transaction, meaning they have no stake in the outcome and are not related to either of the parties by blood.
Although recording is not always required, it is highly recommended that you do record as soon as possible because it will protect you from potential adverse claims to your title by other parties. Every deed of trust should be recorded with the appropriate local office, usually called the County Recorder's Office or County Clerk's Office. As every county has its own specific filing requirements, we recommend contacting your local office to see if it requires any supplemental forms, whether it has any special requirements you need to complete, and also if you need help writing a proper legal description.
In a deed of trust, the trustee is the party responsible for holding the title to the property. The trustee transfers the title to the borrower after the lender is repaid in full. If the borrower fails to repay or otherwise defaults on the loan, the trustee will transfer title to the lender.
In a deed of trust, the mortgagee is the party lending money (usually a bank), while the mortgagor is the party borrowing the money.
A guarantor, as the name implies, guarantees repayment on a loan if a borrower defaults. Lenders may require a guarantor, especially if the borrower has poor credit.
There are two main differences between a mortgage and a deed of trust. First, a deed of trust uses a third party, called a trustee, to hold the title to a piece of real estate while the borrower repays the lender. When the loan is repaid, the trustee transfers title to the borrower. However, if the borrower defaults, the trustee will transfer the title to the lender. This arrangement helps ensure that both parties' rights are respected.
The second difference has to do with the method for pursuing foreclosure in the event of default. Under typical mortgages, lenders must seek foreclosure through the court system—called judicial foreclosure. However, deeds of trust contain a power of sale clause that allows the trustee to pursue foreclosure outside of court—called non-judicial foreclosure. Non-judicial foreclosure is thought to be a faster and less costly method of foreclosing. Note that some mortgages (including LegalNature's mortgage agreement) also contain a power of sale clause, thus allowing lenders to choose whichever remedy they prefer.