Trust Deed / Mortgage / Contract for Deed - Posted by John Behle
Posted by John Behle on November 25, 1998 at 13:00:00:
A “Trust Deed” is the most commonly used document for what we generally refer to as a mortgage. There are two documents - the Trust Deed and Trust Deed Note. The note or IOU is the evidence of debt. It refers to the Trust Deed which gives the lender or beneficiary on the Trust Deed Note the ability to foreclose and take the title if they are not paid.
To keep this clear, think “Trust” - I trust you, so I am loaning you money, and “Deed” - but in case you prove I can’t trust you, I am going to take your “Deed”.
In case of default, a notice of default is filed usually accompanied by a “Substitution of Trustee”. That Trustee is usually an attorney that will push the legal process forward and hold a “Trustee’s Sale” if the loan is not re-instated. In a Trust Deed, the “Trustor” (borrower) gives the “Trustee” the power of sale - meaning he can sell the property upon direction of the “Beneficiary” if the loan is not paid. He then gives a deed to the new buyer or to the beneficiary if there are no other bidders at the sale.
One important element of a “Trust Deed” is that no judicial or court proceedings are needed. It can move rapidly according to the state laws and time periods without the need to fit into the court calendar or have a judge involved in any way.
A Trust Deed has nothing to do with Land Trusts.
A Mortgage used to be the most common form of loan document. It includes the “Mortgage” and “Mortgage Note”. Like the Trust Deed, the mortgage secures the property and the Mortgage Note is the evidence of debt.
Most Mortgages have to be foreclosed judicially (a few states have changed that - and modeled their mortgage forms more like Trust Deeds). With Mortgages, there is usually a redemption period after the sale and foreclosure can take much longer. At the sale (except in rare circumstances) with a Trust Deed, it is over and there are no more claims or rights of the borrower.
A Mortgage can take as much as twice as long to foreclose as a Trust Deed.
A “Contract” is referred to as a Contract for Deed, Land Contract, Land Sales Contract, Installment Contract or Uniform Real Estate Contract in different states. It is most like a mortgage in the process of foreclosure, yet in some states there are “Recission” and “Default” procedures that can be quicker. The time period and procedures for foreclosure vary from state to state.
An “All Inclusive Trust Deed” or AITD is a Trust Deed that wraps around other exisiting loans. That is why it can be called a “Wrap” or “Wrap Loan”.
The term “Wrap” can also refer to a “Contract”.