Differences Between Deeds of Trust and Mortgages
Although I try to explain all the trust deed features, many of my customers still feel this theme as very hard to understand. This is the reason that the current article and the following will explain in detail the main differences between deeds of trust and other investment types.
- Image via Wikipedia
The main differences between mortgages and trust deed are:
- 1.- Concerning mortgages, there are only 2 parts: The borrower and the lender. Otherwise, in deeds of trust are 3 different parties: the borrower, the lender and the trustee. The trustee is the person who is appointed the trustee operates as an independent entity to hold the legal title to a property on the lender’s behalf until the borrower has completely paid off the loan, but if a default were to occur, the lender can take ownership of the property.
- 2.- Normally a deed of trust gets a faster foreclosure. This speed is caused due most used foreclosure type is non judicial. However with mortgages the process is very different. With mortgages foreclosures the state regulations will determine the method used for a foreclosure. Often the process is very lengthily
All Inclusive Trust Deed
Recently I stumbled upon a blog. This blog author is Scott Mazza from Simi Valley (California). Scott is a real estate agent for more than 10 years. You can see Scott’s profile here.
The reason I’m writing about this blog is because he clearly explain what is an “All Inclusive Trust Deed“. To make a long story short, this kind of deed of trust secures a wrap-around loan, which loan incorporates an existing loan, with a new loan made by the Seller of a property.
Here is his example:
“For example , the sales price is $200,000, there is an existing first trust deed securing a loan with a balance of $150,000, with an interest rate of 7%, the Buyer has $20,000 cash to put down; therefore, an AITD is created in the amount of $180,000 at 8%. The AITD wraps around the existing $150,000 at, and the Seller makes 1% on the $150,000 at 8%, on the $30,000, thereby effectively increasing the yield.
The Buyer makes payments based upon the $180,000 balance, and the Seller makes the payments on the existing loan secured by the first trust deed.
The terms of the AITD, such as rates, maturity date, payment amount, late charges and prepayment penalty are completely negotiable.
In the event the first trust deed and note contains a “Due On Sale Clause,” the parties will want to seek legal and tax counsel as to the ramifications of doing an AITD.”
What is a deed of Trust ?
A deed of trust, also known as a trust deed, is a unique form of loan
recorded within public records as a deed that has a lien on the property. Trust
deeds are used by borrowers instead of conventional mortgages. This is usually
done in order to obtain greater flexibility on the loan that would be available
under the rules and regulations in standard lending institutions such as banks.
With a deed of trust, there are three main parties involved. These parties
include the trustor - which is the person who is borrowing the money - the
beneficiary - also known as the lender - as well as a neutral third party. This
third party is the trustee, who temporarily holds part of the property title
until the loan is paid in full.