A deed is the formal document used to transfer ownership of real estate from one person to another. Different types of deeds accomplish that objective in different ways, and are used in different types of real estate transactions. Warranty deeds are among the most common types of deeds used to convey land ownership, while trustee deeds are most often used in place of a mortgage deed in California and other states that allow nonjudicial foreclosures.
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A general warranty deed conveys full ownership of land, and is commonly used in purchase and sales transactions of real estate. The warranty deed is the gold standard, the most highly desired form of deed, because in addition to conveying property ownership, it contains the promise of clear title, meaning the property is free of encumbrances. Warranty deeds include a listing of any exceptions to the promise that the title is unencumbered, including utility easements or access rights-of-way. Warranty deeds are often used in conjunction with a quitclaim deed to related property rights, such as land under an adjoining highway or lake, where title history to the quitclaimed portion may not be as clear as necessary to qualify for warranty conveyance.
A trustee deed, also called a trust deed or deed of trust, is an arrangement used in place of a mortgage deed in states like California that allow nonjudicial foreclosure, that is, foreclosure without going to court. An ordinary mortgage deed documents a transaction between two parties, a lender and a borrower. A trustee deed is an arrangement between three parties: the borrower, who is also called a trustor; the lender; and the trustee, who holds legal title to the property. The trustee is usually a title or escrow company. The lender in a deed of trust may be referred to as the "beneficiary" because the trustee holds title to the land in trust for the benefit of the lender.
Under the terms of a trustee deed, the borrower retains equitable title — what is commonly considered ownership of the property — and the right to possession of the property. The borrower gives the lender a promissory note — a legal pledge to pay money owed — in exchange for a loan. The borrower then transfers legal title of the property to the trustee as security for the promissory note, although in some states the trustee may simply place a lien on the real estate.
In most instances a trustee has no power under a deed of trust unless the borrower defaults on his financing payments. In the event of default, the trustee under a trustee deed may foreclose on the property by power of sale and pay the lender with the proceeds. A power-of-sale foreclosure allows the trustee to sell the property without first getting a court order, which is otherwise required in an ordinary mortgage deed. Some states do reserve for homeowners the right to redeem a property sold at a deed-of-trust foreclosure.
References & Resources
- Realty Times: Trust Deeds, Mortgages, Contracts, Warranty Deeds – What are They?
- Bankrate.com: Understanding Quitclaim, Warranty Deeds on Property
- Cincinnati Area Board of Realtors: Deed Types
- Real Estate News: Trust Deeds and Trustee's Deed
- Cornell University Law School Legal Information Institute: Deed of Trust
- The Free Dictionary: Deed of Trust
- U.S. Legal.com: Equitable Title Law and Legal Definition
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