What Is a Deed of Trust?
In the simplest terms, a deed of trust is an agreement between a lender and a home buyer. It states that the buyer agrees to repay the loan and that until the loan is paid off, the legal title for the property belongs to the lender.
A deed of trust includes the following three parties:
- The borrower which is also called the trustor
- The beneficiary which is the lender
- The trust, which is a neutral third-party that holds the legal title
What Is the Role of a Trustee?
A trustee is responsible for holding the legal title to a property until the trustor’s mortgage loan is paid off in full. This is called holding the property in trust for the mortgage lender.
The trustee takes on some risk, as they are partly responsible for the loan repayment if the trustor defaults on the loan. In order to repay the mortgage loan, the trustee would then sell the property. Read more here about how it can benefit trustees to sell a home for cash.
If the trustor doesn’t default on the loan, and they paid it off within the agreed-upon timeframe, then the trustee will transfer the legal title of the property to the trustor.
If the trustee doesn’t do this within a reasonable time limit, they risk receiving a penalty.
Who Can Be a Trustee?
Now that you know more about what a trustee does, it’s important to understand who can act as a trustee. Generally speaking, a trustee has to be an unbiased person or legal entity. However, depending on where the real estate transaction takes place, there may be additional requirements.
Each state has different mandatory qualifications for a trustee, so it’s important to check with your local regulations before designating a trustee.
Many times, the trustee is one of the following:
- A US government agency
- A lawyer
- A professional or domestic corporation or LLC
- A title insurance agent or company
- A national bank or loan association
In most cases, the lender and borrower will jointly agree on who to appoint as the trustee, but sometimes it’s up to the sole discretion of the lender. Most importantly, the trustee must remain unbiased and not take any actions in favor of the lender or the borrower.
Feel More Prepared When Purchasing Your Home
After reading through this quick guide, you should have a better idea of the purpose of a trustee in your real estate transaction. Now, you can feel more prepared as you get ready to close on your home purchase.
For more information on all things real estate, browse through our other articles today!
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