Similar to a mortgage, a deed of trust is a signed agreement which makes it possible for a borrower to buy a house. While the presence of a third party presents one big gap, a deed of trust acts almost just like a mortgage,” states Escrow Help. During the loan-repayment period, the debtor uses the title to her house as security for her debt. The title is transferred back to the debtor After the loan is repaid.
Identification
A deed of trust may also be known as a trust deed or a Potomac Mortgage, according to The Free Dictionary. Though it is like a mortgage, a deed of trust should not be known by this term.
Geography
California is one of those states in which a deed of trust is used rather than a mortgage. Another countries that also follow this principle are Alaska, Arizona, Colorado, Georgia, Idaho, Illinois, Mississippi, Missouri, Montana, North Carolina, Texas, Virginia and West Virginia.
Function
A deed of trust is set into place so that a borrower may achieve the loan that he wants to buy a house, clarifies Escrow Help. Subsequently, the creditor agrees with this loan just under the terms of the trust deed, which makes sure that the home will be sold in the event the borrower defaults on the loan. The profits from the sale would be obtained by the creditor instead of repayment from the borrower.
Misconceptions
Many people believe a deed of trust acts in precisely the exact same way for a mortgage. The California Department of Real Estate clarifies a deed of trust involves three parties, while a mortgage involves just two. In a deed of trust, a borrower, lender and citizenship are involved. The title is transferred to the trustee during the repayment period. In a mortgage arrangement, the title is transferred to the creditor.
Factors
Borrowers must be aware that if they fail to repay their debt to the creditor, the trustee will be asked to sell the house through a foreclosure,” states Escrow Help. Properties with a deed of trust in place can go through the foreclosure process considerably quicker than possessions with a mortgage, making it harder for the debtor to have an opportunity to regain the title into his property.