Title Vs. Deed of Trust

By Anna Assad

The words "title" and "deed of trust" are often used in real estate. If you're buying a home, both these are used -- and they might confuse you. Title is actually a legal concept while a deed of trust is a real estate document. Understanding these terms can help you navigate the buying process.

Concept of Title

The word "title" is a legal term refers to the rights of ownership, which are recognized and protected by the law. These rights include exclusive use, possession and conveyance; conveyance is the transfer of ownership of the real estate from one party to another party. When a person buys a home from the current owner, she receives a deed, a legal document that proves real estate ownership. Once she has the deed, she has title to the real estate.

Deed of Trust

A deed of trust, despite the use of the word "deed," is not proof of clear ownership or title. Some states, such as California, use deeds of trust to secure a home loan instead of a mortgage. A deed of trust has three parties: the beneficiary, the trustor and the trustee. The beneficiary is the lender, while the trustor, or grantor, is the borrower, and the trustee is a third party such as a title insurance company. The borrower transfers her interest in the home to the trustee — a person or business who acts as the agent for the lender — on the deed of trust; the trustee actually holds title to the property in most states. The document often contains a clause that gives the trustee the right to act if the borrower defaults. If the borrower doesn't pay her home loan, the trustee can foreclose outside the court system. Some states treat a deed of trust as a lien only -- and the borrower doesn't actually transfer her title to the home to the trustee. Some states, such as Colorado, have public trustees who act as the trustees on all deeds of trust filed in the state instead of a third party chosen by the lender. The document contains information about the home loan, including the amount and loan date, and identifies the affected real estate.

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Clouded Title

Real estate professionals sometimes refer to title as "clouded." Clouded title occurs when another person or party has rights to the property other than the current owner. For example, an outstanding home loan from a prior owner can create a title cloud because the lender might still have rights to the real estate. Title clouds can make the title unmarketable, particularly if a buyer finds he can't get title insurance. Title insurance is insurance coverage against problems with the home's title; mortgage lenders often require it.

Deed of Trust Release

Once the borrower pays the loan in full, the deed of trust is eligible for release. This is usually accomplished using a deed of reconveyance. The trustee prepares this deed, which transfers the real estate back to the borrower. The deed contains the names of the trustor, trustee and beneficiary, the original loan information and the recording information for the deed of trust. After the deed is recorded in the county land records, the property's title is free of the home loan.

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How to Fill Out the Deed of a Trust to Secure Assumption

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.

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.

How to Put My House in a Trust

You can put your home into your trust by preparing and filing a new deed from all current owners of the home to your trust, no matter what type of trust you have. A deed is a legal paper that is proof of property ownership. Although there is more than one type of deed, a warranty deed is commonly used for a transfer by an owner to a trust. A warranty deed allows you to transfer the home without creating problems later because you are guaranteeing the home's title, or history of ownership. A warranty deed acts as certification of your right to move the home to the trust.

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