What Is an Appointment of a Substitute Trustee?

By Tom Streissguth

Good baseball teams need good relievers, and so does a trust. When a grantor sets up a trust, he names a substitute trustee to handle things when the primary trustee needs to bow out. Real estate law also allows for a substitute trustee when a lender grants the right to foreclose to another party.

Good baseball teams need good relievers, and so does a trust. When a grantor sets up a trust, he names a substitute trustee to handle things when the primary trustee needs to bow out. Real estate law also allows for a substitute trustee when a lender grants the right to foreclose to another party.

Making a Trust

A trust is a legal structure that allows a grantor to place assets under the control of a trustee. The assets become the legal property of the trust; the trustee manages the property for beneficiaries named by the grantor. A grantor creates a trust by signing a document that lays out its terms and gives conditions under which a substitute trustee may be named.

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Bringing a Substitute

If the primary trustee dies, becomes incapacitated or resigns from the position, the trust beneficiaries or the grantor will need to appoint a substitute. A trustee may also lose the capacity to meet the requirements of the position if he is incarcerated, leaves the country or suffers a lengthy illness. The state law that governs trusts may also permit beneficiaries to petition a civil court for a substitution of trustee if the trustee fails to act in the best interests of the beneficiaries.

In Real Estate

A substitution of trustee is also a familiar term in real estate law. If a property owner defaults on a mortgage, the lender may appoint a substitute trustee to carry out the foreclosure. Banks, for example, may not be prepared to carry out court filings, attend hearings or gather foreclosure paperwork and will turn those tasks over to a law firm by substituting the attorneys as trustees. Only the original trustee named in the mortgage or deed of trust -- documents that secure the loan with the property -- may appoint a substitute trustee. State laws control this process. Under Texas law, for example, a lender may allow the mortgage servicing company, which handles payments from the borrower, to appoint a substitute trustee.

Reconveyance

A substitution of trustee is often combined with a "reconveyance." This document shows that a loan on property has been paid in full and the borrower now owns the property free and clear. If the homeowner refinanced his property with a new lender, the reconveyance gives that lender a lien on the property until the second loan is paid off. The second lender becomes the substitute trustee, who holds the deed of trust until full and final payment on the loan.

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What Is a Second Trust Deed?

References

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