Does a Deed of Trust Mean Ownership?
Parcels of real property and homes built on pieces of property are expensive to own. Most buyers do not have the money on hand to purchase real property outright. Typically, the buyer must secure a loan from a lender to make the purchase. This is commonly called a mortgage, however, in deed-of-trust states, the transaction has some subtle nuances regarding ownership and title.
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Deed-of-Trust Transaction
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A deed-of-trust transaction involves three parties: the buyer, the lender and a third party. The third party is called a "trustee" and is typically an escrow company. In contrast, mortgages only involve two parties: the buyer and lender. In a deed-of-trust transaction, the borrower agrees to lend money to the buyer, who then purchases the real property. Title to the property, however, is split between the buyer and the third party. The buyer keeps the "equitable title," but the trustee holds the "legal title."
Equitable Title
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Equitable title allows the buyer to remain on the land and to use and enjoy it. The buyer holding equitable title cannot do anything to the land that would be to the detriment of the legal title holder, such as sell the land or devalue it. Title to the property remains split while the buyer makes payments on the loan.
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Legal Title
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The trustee holds the legal title to the land for the benefit of the lender. Legal title in a deed of trust state allows the trustee to certain rights if the loan is not repaid. Once the buyer repays the entire amount of the loan, the legal title becomes void and complete title to the property vests in the buyer.
Foreclosure
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Legal title to the property allows the trustee to initiate foreclosure proceedings if the borrower does not repay the loan. According to EscrowHelp.com, a foreclosure in a deed-of-trust state is typically faster than the proceedings in mortgage states. Typically, the court does not need to be involved in a deed-of-trust foreclosure. Buyers in deed-of-trust states, however, should contact a property law attorney in their area for the specific procedures required.
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