Deed of Settlement Vs. Trust Deeds

By Karyn Maier

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.

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.

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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.

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Texas Deed of Trust Laws
 

References

Related articles

What is an Assignment of Trust Deed?

If you own a home, you may have signed a trust deed that gives the mortgage lender a claim on the property. A default on the loan gives the lender the legal authority to foreclose on the loan and take possession of the house. An assignment of a trust deed conveys that claim to another party.

Who Can Act As Trustee in a Texas Deed of Trust?

A deed of trust is a type of trust instrument that transfers interest in real property. In Texas, a deed of trust is most commonly used to secure a loan for the purchase of a home or other real property until that loan is repaid and the trust is voided, similar to how mortgages are used in other states. It can also be used, however, as a more permanent part of a comprehensive estate plan. The trustee, the person or entity who owns and manages the property, must meet Texas' legal requirements for trustees.

What Is a Second Trust Deed?

A deed of trust is similar to a mortgage, allowing a borrower to secure a loan to buy a house by using the house as collateral. The difference is that in a mortgage there are two parties involved – the borrower and the lender -- while in a trust deed there are three parties involved – the borrower, the lender and a trustee. The trustee, who is generally a title insurance company or a bank, holds the legal title to the property until the loan is paid in full. Depending on where the property is located, state law determines which type of security instrument must be used.

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