CHAPTER 6 Deed of Trust and T rust and Trustee Sales ee Sales Up to this point, we’ve made a fairly generic use of the term “mortgage” to mean the loan arrangement you make to buy your home. Traditionally, states have been “lien theory states.” In those states, you obtain a mortgage to purchase property, and you hold the deed to the property you buy. Based on your mortgage agreement, the lender has a lien against your property. Instead of a mortgage, many states have been converting to use of a three-party agreement called a “deed of trust” to secure the debt of the borrower, sometimes called the “trustor.” The bank or other lending institution (sometimes called the “beneficiary”) lends you the money to purchase the home. However, you give the legal title to the property to an impartial “trustee” to hold it for the lender. You, of course, have possession of the property. More than half the states in the U.S. have now adopted this system. There are some legal distinctions between a mortgage and a deed of trust that we need to discuss. In “title theory states,” where deeds of trust are used, the homeowner doesn’t really have the title to the property. Instead, the title is held by an impartial trustee as security for your loan. You might be given the title when you buy the property, but you then hand it over to the third-party trustee. In a few “title theory states,” the lender holds the deed instead of a third-party trustee. In these states, you might still have an actual mortgage, rather than a deed of trust. Obviously, this can be confusing, but if you’re in doubt about your status, your attorney or real estate professional should review your loan documentation and clarify the situation. Regardless of whether 32
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