Do You Need a Deed of Trust With your Plano Real Estate Purchase?

The amount of paperwork a buyer signs at closing is overwhelming to say the very least. Almost all of these documents will be generated by the buyer's mortgage company. Without ever reading them and just signing off on them, it generally takes buyers an hour to complete them. Every blue moon, I attend a closing with buyers who actually take time to read through the closing documents. 

 

Unless you are paying cash or you are in a mortgage state you will be required to sign a Deed of Trust.  It doesn’t matter if you are buying a or the Deed of Trust works exactly the same. 

What is a Deed of Trust?

A Deed of Trust is the security instrument for your loan. It is the document that is recorded in the public records and secures a lien for the lender against your property.

A deed of trust contains three parties:

·         Trustee, which is an entity that holds "bare or legal" title

·         Trustor, which is you, the borrower

·         Beneficiary, which is the lender

The deed of trust is a security instrument that identifies the following information:

·         Original loan amount

·         Legal description of the property being used as security for the mortgage

·         The parties to the transaction

·         Inception and maturity date of the loan

·         Provisions of the mortgage and requirements

·         Legal procedures, including acceleration and alienation clauses

·         Riders, such as clauses for prepayment penalties

Who or What is a Trustee?

Deeds of trust contain a trustee who is an independent third party that does not represent the borrower, the lender, or the owner.

·         The trustee can be a person or an entity that holds the "Power of Sale" in the event of a loan default.

·         The trustee also reconveys the property once the deed of trust is paid in full.

·         In the event of a default, the trustee files a Notice of Default; however, in most instances, the trustee will substitute another trustee to handle the foreclosure process under a Substitute Trustee.

·         After the required period of time in the public records, and the required period of time in the publication period in the newspaper, the trustee then has the power to sell the property without a court procedure or lawsuit.

·         In many jurisdictions following recordation of the Notice of Default, the borrower can redeem the property by making up the back payments and paying the trustee's fees.

·         Once the trustee sells the property at a Trustee's sale, it is final.

What is a Promissory Note?

Whereas the deed of trust is security of the loan, secured by the property, the promissory note is the evidence of the debt and the promise to pay.

·         The promissory note is a promise to pay, signed by the borrower.

·         It contains the terms of the loan such as the interest rate and payment terms.

·         The promissory note is generally not recorded in the public records.

·         When the loan is paid, the promissory note is marked "paid in full" and returned to the borrower.

Before Signing a Promissory Note and Deed of Trust

Read both of these documents thoroughly, including the small printed sections. You should consider asking the closer to send you a copy of the preliminary deed of trust and promissory note beforehand. Because closers are human and make mistakes, here are the important items to review:

·         Address of property

·         Spelling of trustors' names

·         Principal balance of the loan

·         Interest rate

·         Payment amount

·         Prepayment penalties, if applicable