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What does a trustees deed mean?
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In this article, I will break down the legal definition of a Trustees Deed so you know all there is to know about it!
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What Does Trustees Deed Mean
A trustee’s deed refers to a legal document signed when you purchase real estate property, but the title is held by a trustee.
In other words, in some situations, the property owner’s title is held by a third-party trustee as per the terms of the contract.
In some jurisdictions, when a person wants to purchase a real estate property and requires financing from a lender, the lender may accept to finance the transaction provided the title of the property is put in a trustee’s name until the loan is fully paid off.
Typically, an escrow company will act as the trustee holding the title to the property as a security for the lender until the borrower has paid off the loan.
In essence, in the event an escrow company is holding a property where the buyer defaults on the loan, the trustee has the legal power to foreclose the property and sell it to pay the lender’s outstanding loan.
When the trustee is selling the property, we’ll refer to that as a situation where the buyer is getting a trustee’s deed.
Trustees Deed Definition
What is the legal definition of trustees deed?
To understand the meaning of a trustees deed, let’s first define the meaning of a deed.
A “deed” is a legal document where the rights, interests, and title to a property can be conveyed.
For example, when you purchase a property, you will obtain a deed attesting in writing that you are the legal owner of the property.
Now, a trustees deed can be legally defined as follows:
A trustee’s deed is a type of deed where the title of a property is held by a third-party trustee instead of the actual property owner
The reason why a third party trustee is holding the title to the property is typically in the context where a lender requires that the borrower’s title to the property be held by a trustee until the loan on the property is paid off.
In essence, the third party trustee is holding the title of the property as a security for the lender.
How Trustees Deed Work
Let’s look at how trustee deeds work.
Purpose of Trustees Deed
What is the purpose of a trustees deed?
The main purpose of a “trustees deed” is to protect lenders who lent money to borrowers purchasing property.
For example, if a person is looking to purchase a property costing $300,000 but only has $25,000 to put as an initial deposit, the bank may accept to finance the remaining $275,000 provided the title of the property is conveyed to a trust (typically an escrow company, bank, finance company, or other).
For so long as the $275,000 loan remains outstanding, the borrower’s title will be held by a trust.
When the borrower pays off the loan, the trustee will formally pass on the title of the property to the borrowre.
However, if the borrower defaults on the loan, the trustee can directly sell the property as it holds the legal title to the property.
In a nutshell, the trustee’s deed serves as a security to the bank holding the property as collateral.
Content of Trustee’s Deed
What information is found in a trustees deed?
A trustees deed will typically include the following information:
- Name of the party transferring the property (the grantor)
- Name of the party receiving the property (the grantee)
- A detailed description of the real estate property
The lender and the borrower can also include other terms and conditions in their trustee deed but the name of the grantor and grantee along with the property description is essential.
Trustees Deed Foreclosures
In some states, lenders will accept to lend money to borrowers who wish to finance the purchase of property provided the borrower places the title of the property in the hands of a trust company.
The trustee will hold on to the title of the property until the borrower pays off his or her loan.
If the borrower defaults on the loans, the lender can engage a trust deed foreclosure process which is different than a mortgage foreclosure process.
In fact, a trust deed allows the lender to foreclose the property without having to go to court (it’s a non-judicial foreclosure process).
In fact, the trust company has the legal title to the property can actually sell the property to someone else when the borrower is in default.
In that case, the trustee will use the sale proceeds to pay off the lender’s principal, interest, and penalties.
If any money is left over, the trustee will pay the balance to the borrower.
In summary, the trustees deed foreclosure is non-judicial, fast, and less costly for the lenders.
Trustee’s Deed Example
What is an example of a trustee’s deed?
To better understand the meaning of a trustees deed, it’s useful to look at a simple example.
Here is an example of trustee’s deed that is published by the State Bar of Wisconsin where you have a short fillable form where you’ll need to put:
- The name of the grantor
- The name of the grantee
- Description of the real estate property
The form is signed, dated, and authenticated.
Trustees Deed Advantages
What are the benefits of a trustees deed?
The main advantage of purchasing a property where the title is being conveyed via trustee’s deed is that you may be getting a great deal on the property.
When an escrow company sells a property it holds as a security for a lender, it means that it’s trying to sell the property of a borrower that was in default of paying his or her loan and the objective is to reimburse the lender’s outstanding loan.
To accelerate the sale, lenders will sell the property at a bargain so they can get their money as soon as possible.
Investors looking to purchase a property for a bargain and sell it quickly for a profit may be interested in trustee deed purchases.
Another advantage of a real estate transaction done with a trustee’s deed is that the sale will generally happen very quickly.
The lender is not interested in having a long and complicated closing as the more time it takes to sell the property the more the lender is losing money.
Trustees Deed Disadvantages
What are the drawbacks of a trustees deed?
Purchasing a property via a trustee’s deed does come with important disadvantages that you should be mindful about.
The most important drawback is that you will purchase the property without any warranties.
In other words, if you purchase the property and another lienholder shows up in the future, you’ll be on the hook.
For example, you can have the IRS having a lien against the property for unpaid taxes or a contractor’s lien for work done on the property.
When you buy the property, you will be responsible for any outstanding debt or liens on the property going forward.
Another main disadvantage is that banks typically will not finance the purchase of a property when the title is via trustee’s deed.
If you are looking to purchase a property via trustee’s deed, you should be ready to make the purchase in cash.
Different Types of Deeds
What are the different types of deeds that can be held by someone?
You may come across different types of deeds when dealing with a real estate property, such as:
- Quitclaim deed
- Warranty deed
- Special warranty deed
- Deed of release
A quitclaim deed is when a buyer purchases a property from the seller who makes no guarantee whatsoever to the buyer.
A warranty deed is a type of deed where the seller guarantees to the buyer that the title of the property is clear.
A special warranty deed is a type of deed where the seller provides title guarantee to the buyer for the period of time the seller owned the property.
The deed of release is when a borrower is discharged from the terms of a loan and where the title of the property is given to the property owner.
Trustees Deed Meaning Takeaways
So there you have it folks!
What is a trustee’s deed in simple terms?
A trustees deed is a legal document where a lender and borrower agree to put the borrower’s property in the hands of a trust company until the borrower fully pays off the lender’s loan.
Depending on your jurisdiction, your lender may either go the mortgage route or the trustee deed route to secure collateral on your property.
Trustee’s deeds are more frequently found in Alaska, Arizona, California, Colorado, Idaho, Illinois, Mississippi, Missouri, Montana, North Carolina, Tennessee, Texas, Virginia, and West Virginia.
The main objective of a trustees deed is to ensure that a neutral third party holds a borrower’s title to a property until the borrower’s debt is paid off.
When the borrower fully pays his or her debt, the trustee will transfer full ownership of the property to the borrower.
On the other hand, if the borrower defaults on the loan, the trustee has the legal power to sell the property and pay the proceeds to the lender.
Now that you know what is a trustees deed, how it works, and why it’s important, good luck with your real estate transaction!
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Understanding Trustees Deed
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