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Real Property • Security Interests in Real Estate
PROP#202
Legal Definition
The debtor is the trustor, who gives a deed of trust to a third-party trustee connected to the lender (beneficiary). On default, the lender instructs the trustee to foreclose the deed of trust by sale.
Plain English Explanation
This is basically a mortgage with extra steps. In a mortgage, you have two parties: the debtor and the lender. The debtor gets money from the lender, and the lender holds some interest in the property (either the deed or a lien depending on the jurisdiction).
In a deed of trust situation, the debtor gets money from the lender, and then the debtor gives a deed to a third-party who holds on to it in trust. The lender becomes a beneficiary. If the debtor fails to pay, then the third-party forecloses on the property to pay the lender what it is owed.
In other words, the third-party acts as a sort of neutral referee that obeys the rules of the game. The rules are, "If the debtor pays back the money, they get back the property. If they don't, I sell the property and pay your debt to the lender."
In a deed of trust situation, the debtor gets money from the lender, and then the debtor gives a deed to a third-party who holds on to it in trust. The lender becomes a beneficiary. If the debtor fails to pay, then the third-party forecloses on the property to pay the lender what it is owed.
In other words, the third-party acts as a sort of neutral referee that obeys the rules of the game. The rules are, "If the debtor pays back the money, they get back the property. If they don't, I sell the property and pay your debt to the lender."
Related Concepts
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How do states treat a note without a mortgage?
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How may a party be a holder in due course of a note?
In lieu of foreclosure, what do many installment contracts prefer and how do courts address this alternative?
Under which theories may a mortgagee take possession of a property and begin receiving rents before foreclosure?
What are the 5 types of security interests in real estate?
What are the benefits of the holder in due course status?
What are the limitations of a junior interest?
What are the methods of transferring a note?
What interests does a foreclosure destroy?
What is a deficiency judgment?
What is a due on sales clause?
What is a foreclosure?
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What is a redemption in equity?
What is a statutory redemption?
What is the distribution order of proceeds from a foreclosure?
What is the result of a grantee assuming the mortgage?
What liabilities are associated with a mortgaged property that is transferred to another party?
What occurs in intermediate theory states?
What occurs in lien theory states?
What occurs in title theory states?
What results from a party purchasing a foreclosed property subject to a senior interest?
What security interests exist under a absolute deed?
What security interests exist under a installment land contract?
What security interests exist under a mortgage?
What security interests exist under a sale-leaseback?
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