Initials Deed of Trust Template Made Easy

Initials deed of trust template

- Hey everyone, my name is Paul Vojchehoske and welcome to the Real Estate Classroom YouTube channel. Before we get started, please do me a favor. Give this video a thumbs up, hit that red subscribe button and click on the notification bell. In today's video we're gonna discuss what's called a deed of trust, or sometimes called a trust deed, depending on what part of the country you're operating in. Now, I did a previous video on, excuse me, the promissory note and a mortgage. A promissory note, the mortgage, and a deed of trust all kinda go hand in hand together. So if you have not watched that video yet, I highly recommend that you go watch that video first, then come back to this one. That will make this video make so much more sense. And I'm gonna put a link right up here in the upper right hand corner of your screen to that video. So that's my recommendation. All right, so are you ready? Let's talk about deeds of trust in this video. (upbeat music) So what is a deed of trust? Well like the mortgage, it is establishing the collateral, if you will, for the loan that the borrower's getting from the bank, and depending on the state that the property is located in, we're gonna use a mortgage, which we talked about in that previous video, or we're gonna use a deed of trust. All right, so in this video, we're gonna discuss some key real estate terms that you have to know. A deed of trust, trustee, trustor, beneficiary, equitable title, legal title, deed of reconveyance, and nonjudicial foreclosure. Those are the key terms that we're gonna discuss in this video. So let's start with the definition of a deed of trust and I have it on your screen here. A deed of trust is an agreement. It's an actual document between the lender and the borrower to give the property to a third party, a neutral third party who will serve as the trustee. Now, the borrower is the trustor, that's their legal name, and the disinterested third party is called the trustee. The trustee holds title. Remember, title in real estate is ownership. So the trustee holds ownership to the property. They actually hold legal title to the property until the borrower pays the debt off. During the period of repayment, the borrower has what's known as equitable title and the trustee holds legal title, all right, important distinction to remember. When you're studying for your licensing exam, here's the way I like to explain it. If someone has legal title, they have the right to sell it or the right to transfer title to somebody else. Equitable title simply means you have a future ownership interest and you currently have the right to possess and the right to use. A deed of trust is a three party relationship. So if you the mortgage, a promissory note and mortgage video, we said the mortgage is a two party relationship where you have the mortgagor, who's the borrower, and the mortgagee, who's the lender. When we're using a deed of trust, it's a three party system or a three party relationship where we have the trustor, who's the owner or borrower, we have the trustee, who is the neutral, disinterested third party, typically they're attorneys or escrow companies, and then we have the beneficiary, who is the lender. So what is the process here? Well, step number one, the trustor, who is the owner or the borrower, they have legal title in that property so they're gonna transfer that legal title, literally using the deed of trust to a trustee, which is a disinterested third party. So they're actually transferring ownership to that trustee, all right? Step two is upon transfer of that title, remember the trustee, that disinterested third party, they actually now hold legal title and the trustor, who is the borrower, they now have what's called equitable title. And remember, legal title gives somebody the right to transfer title and the equitable title allows for use and possession, all right? So step two, upon transfer of title, the trustee now has legal title and the trustor has equitable title. Step three, if the trustor, remember the trustor is the borrower, if the trustor fulfills the terms of the agreement, they have paid off their note, they have no more payments, then the trustee is going to reconvey ownership or title back to the trustor like it was in the very beginning and they're gonna use what's called a deed of reconveyance. The deed of reconveyance will transfer or reconvey that ownership back to the trustor. Let's look at step four. Now, if the trustor, who's the borrower, if they default on payments and a foreclosure has to happen, here's what happens. The beneficiary, who is the bank that borrowed the money, they're gonna notify the trustee and say, "Listen, the trustor has not made the payments, so please foreclose on the property." So the trustee who has legal title to the property will then use a process called a nonjudicial foreclosure. We're gonna talk more about that in a minute, but that's if the trustor defaults on payments. A lot of legal terms here but you just have to know who they are. You have to know that the trustor is the borrower or the owner of the property. You have to know the trustee is a disinterested third party. You have to know the beneficiary is the lender. You just have to know this process that I have outlined on the screen. Otherwise you really won't understand or grasp the trust, the deed of trust process. All right, so what's contained in that deed of trust? I did this for the mortgage video, where we pointed out what kind of language and provisions and clauses are included in that mortgage. Well, the deed of trust is the same thing. Now understand this, like the mortgage, there's a promissory note and then the mortgage. The promissory note is the promise to repay a debt. The mortgage is the collateral or security for the loan in case of default. A trustee is kind of the same way where the more, the promissory note is a promise to repay and the deed of trust was the mechanism to secure the collateral in case there's a default. Now a promissory note, remember promissory note, mortgage, and deed of trust are all separate, distinct, individual instruments, but also like the mortgage and the promissory note where they can be combined into one, we can do the same thing here. Many times that does happen well where the deed of trust and the promissory note are combined into one, but they are technically two legally distinct separate instruments. So what are we gonna find in the deed of trust? We're gonna find escrow account requirements, and remember that escrow account, we discussed this in a previous video, pays for the borrower's taxes, property taxes, and insurance on behalf of the borrower. It'll have processes if there should be a default of payments, how payments are applied. Number five, hazard insurance requirements. Number six, maintenance requirements. In fact, a lot of people don't realize that as a borrower, if you aren't maintaining the property, the lender can actually go in and go through the process of foreclosure to secure that property because it's not being maintained, it's losing its value. Number seven, mortgage insurance requirements, if any. Number eight, it describes what happens if the property is condemned by a governmental body. Number nine, acceleration remedies. And then number 10, it typically has an alienation or what we call a due on sale clause. And it's gonna have a whole bunch of other stuff, but these are the main things that I think you should know for illustrative purposes. Now, the deed of trust versus a mortgage. Now, I assume you've already watched the mortgage video so some of this will make sense if you have. So why do we have a deed of trust? Originally it was all just mortgages and promissory notes, and then many states and most states actually today, we use the deed of trust process. Why is that? Because a deed of trust for the lender on the lender's behalf is much more efficient and much, much easier to foreclose upon default of the borrower's payments. For example, in a deed of trust state, and this is varying a little bit, but in a deed of trust state, foreclosure can happen within a couple of months. In a mortgage state, it could literally take years for the lender to get the property back through the foreclosure process. So from the lender's point of view, it's much more efficient and beneficial to use a deed of trust. Number two, a mortgage, as we talked about, is a two party relationship, which has the mortgagee and the mortgagor. A deed of trust is a three party relationship; trustor, trustee, and the beneficiary. Number three, depends on the state where you're located, meaning some states are mortgage states, and most states are actually the deed of trust state. Number four, mortgage, the mortgagor, who is the borrower, actually retains legal title, and the lender, who's the mortgagee, places a lien against the property. In a deed of trust, the trustor receives equitable title. Now remember, the trustor is the borrower. They have what's called equitable title, the right to use and possess and they have a future ownership interest, and the trustee, who is the neutral third party, holds the legal title. That's the difference here. And then number five, the mortgage, when we're talking about a mortgage, a mortgage, if the lender has to foreclose, must use what's called a judicial foreclosure process where they actually have to go to court. A deed of trust, it's nonjudicial foreclosure, they don't have to go to court. The trustee, upon notification of the beneficiary, which is the bank, of default, they go to what's called a trust sale maybe, or a trustee sale. I'm sorry, with two Es, trustee sale. And maybe you've heard about homes being sold at the courtroom stairs. That's literally what happens and it's called a trustee sale. Now, before we go, very important to remember that you understand these three concepts: the promissory note, the mortgage, and the deed of trust. You have to understand the processes. You have to understand who's legally called what. Because the mortgage, the borrower, and the lender have different terms. The deed of trust, those parties are called something different, but you have to know them for the real estate exam. 'Cause I guarantee you, you're gonna have some of these on your exam and you have to know them. So, all right, if you're gonna continue studying and you have not watched the promissory note mortgage video yet, to my right, I'll have the link for you. And if you have not, if you have not subscribed, please do so, I'm trying to grow the channel, click the little circle. And always, we love comments, we love questions, put them down in the comment section of the channel. I'll see you in the next video.