Formation of a Loan
The borrower gives a promissory note to the lender for $150,000. The lender gives the $150,000 needed by the borrower at closing. In the formation of the trust, the borrower becomes the trustor (giver of the trust deed). The lender now becomes the beneficiary of the trust. The trustee/3rd party will look after the lender regarding contracted payments by the borrower.
Borrower/Trustor - The borrower receives title to the property; lien theory state. The borrower/trustor gives a trust deed instead of a mortgage. So, instead of being known as the mortgagor, the borrower is known as the trustor. They are the trustor in issuing the trust deed. They give the trust deed to a neutral 3rd party known as the trustee (receives the trust deed).
Trustee - A neutral 3rd party (referee) between the borrower and the lender. This trustee can only receive instructions from the beneficiary (lender) and the trustor (buyer). If the buyer or lender want to communicate, it goes through the trustee (3rd party).
Trust Deed - A trust deed is not a deed. It does not convey interest in a property. It conveys the ability to sell property without having to go to a court to foreclose. If the borrower defaults on the promissory note and the lender/beneficiary tells the trustee that it is necessary to foreclosure, the neutral 3rd party (trustee) has to the power to sell the property (no sheriff's sale) under the power of sale clause.
Naked Title - Because foreclosure does not require going before a judge, this is also referred to as naked title. The trustee has the stripped down rights to do a forced sale without going before a judge/court.
Performance (Paying Off) a Loan
Performance of a loan means the borrower has made all the contracted payments under the promissory note. The promissory note has been paid off. The owner must get something to record showing that the trust deed has been paid off.
Beneficiary/Lender - When the borrower has made all the payments or paid off the promissory note, this is called performance. The beneficiary/lender notifies the trustee that the debt is paid off.
Reconveyance Clause - Inside the trust deed (deed of trust) there is a clause called the reconveyance clause. This requires the trustee to reconvey the naked title back to the owner. The recordable document sent by the trustee to the borrower/ owner is a deed of reconveyance. This simply reconveys the complete title back to the owner in full. The power to sell is taken away from the trustee; no possible foreclosure.
Mortgage vs. Trust Deed:
Foreclosure on A Trust Deed
When the borrower/trustor defaults on the promissory note, the trustee will have to foreclose on the borrower/owner. The trustee cannot do this on their own. She/he must get instructions. The (promissory) note is being held by the beneficiary/lender. If the borrower defaults, the lender must notify the trustee/referee to foreclose on the trust deed. The following would occur:
Foreclosure by Advertisement and Sale
Instead of using the Judicial Foreclosure and Sale, the lender/beneficiary can have the trustee utilize Foreclosure by Advertisement and Sale. This method protects the lender's interest far more.
Foreclosure by Advertisement and Sale - This does not require the trustee to go to court or appear before a judge. This means the lender can foreclose without going to court. This is sometimes called a trustee sale. Trustee procedure under this lender option:
Trustee Sale - The trustee must wait 20 additional days after the 4th advertisement and then can hold a trustee sale. The owner/borrower has the right to reinstate the loan up until 5 days prior to the trustee sale. When it is 4 days before the sale, there is nothing the borrower/owner can do. The trustee holds the sale (no sheriff). The highest bidder will receive a trustee's deed on the spot. There is no statutory right of redemption after the sale. No additional 1 year to redeem by the borrower/owner. They must immediately move out of the property foreclosed.
Buyer Possession - The new buyer will gain possession of the property after 10 additional days beyond the trustee sale.
Time Period of Foreclosure - A borrower under a trust deed could lose possession of the property within 78 days instead of 1 year. 30 days to notify the owner. 4 weeks (28 days) of advertising. And 20 days before the trustee sale.
Renew the Loan - The owner can only renew the current loan up until 5 days prior to the trustee sale. This gives the borrower/owner 73 days to renew the loan.
Under a deed of trust security device a reconveyance deed is signed by the:
A trust deed is satisfied on the public records
A) by posting a guarantor's bond
B) by recording a deed
C) when final payment is made by the grantor
D) when a reconveyance deed is recorded
What is a beneficiary obligated to do after the trust deed has been paid in full?
A) make request for reconveyance
B) issue acknowledgment
C) issue a reconveyance of trust deed
D) acknowledge satisfaction
CLICK HERE FOR REVIEW QUESTIONS AND ANSWERS (42752)
The study of system of rules which a particular country or community recognizes as regulating the actions of its members and which it may enforce by the imposition of penalties.