Deed of Settlement Vs. Trust Deeds

by Karyn Maier
A deed of settlement was once used to incorporate companies in the textile industry.

A deed of settlement was once used to incorporate companies in the textile industry.

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A deed of settlement and a trust deed may sound similar because both contain the word “deed,” but they are unrelated. The former is a form of contract created under English Business Law, while the latter represents an investment in real estate as an alternative to a standard mortgage. These two documents also have different filing requirements.

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Deed of Settlement

A deed of settlement is a legal instrument that came into use in 18th century England to regulate the activities of companies structured as joint stock companies, such as banks and textile factories. This permitted private companies to form corporations without the need for a royal charter or parliamentary act or other. Its purpose was to name individuals of the company as trustees of the assets jointly owned by the company and to outline rules relating to its management.

Modern Usage

After the revolutionary war, American states had powers of incorporation that applied to companies involved in public affairs such as banks, as well as private enterprises. Eventually, the deed of settlement evolved into “articles of association,” although some states use the terms “articles of incorporation.” In any case, the document outlines the structure of the company in terms of voting rights of its directors and shareholders and the number and value of stocks authorized to be issued.

Trust Deed

Also referred to as deed of trust, a trust deed is used to assign or transfer title to real estate to a trustee to hold as security against the property until the property is paid off in full. The trustee, usually a title company, has no financial interest in the property and only becomes involved if the trustor defaults on the loan, in which case the trustee would foreclose on the property on behalf of the beneficiary, which is the lender. A trust deed is similar to a mortgage except that there are three parties involved instead of only two.

Differences

A deed of settlement, or articles of incorporation, is filed with the Department of State when and where the corporation is formed. In contrast, a trust deed is filed in the office of the clerk or the property records department of the county in which the real property is situated. The only time a corporation is likely to file a deed of trust is in the event that the company buys, sells or transfers real estate that is encumbered by a mortgage or other lien.

Similarities

Both documents involve filing fees, which vary depending on the state or county. Both documents are also public records, which means anyone who requests access can view and even copy them.