What is a Deed of Trust?

If you live in Texas and own a house, you may be wondering about the type of deed you possess. In Texas, a Deed of Trust is a common type of arrangement when you purchase a home just as a mortgage is more common in other states. Whether you have a Deed of Trust or a Mortgage, missing payments could equal an impending foreclosure. 

The most notable difference between the two types of deeds is that with a mortgage you pay the lender, while in a Deed of Trust you pay the Trustee instead. 

What is a Deed of Trust?

In a Deed of Trust, there is a 3rd party involved, but only to make sure that both the Lender (Beneficiary) and Borrower are both treated equitably. The Lender signs the title over to a neutral third party called the Trustee. The Trustee holds the legal title to the real estate in a Trust until you, the Borrower, completely pay off the loan.

What is a Trust?

A trust is simply a legal framework for documents pertaining to assets. The trust owns the asset (your property) and the Trustee manages the asset by accepting your payments each month. 

Who is the Trustee in a Deed of Trust?

Usually the Trustee is whoever the legal owner appoints to the position. The Trustee can be anyone that is willing to hold the position but is usually someone whom the property owner trusts implicitly.

Common Trustees:

• Bank 
• Attorney
• Title Company
• Escrow Company

So then Who Owns My Home?

In a Deed of Trust, the lender is the owner of the property. As long as you make payments on time, you hold what is called an equitable title. Having the equitable deed means that you benefit from the property ownership even though the lender legally owns the property.

Once you finish making all payments, the Trustee’s role is finished and you receive the Property Title or Deed and retain complete ownership.

Mortgage or Deed of Trust?

Qualities of a Deed of Trust:

• Lender (Beneficiary) is legal property owner
• Deed is held in the Trust
• Trustee manages the Trust and determines default
• Trustee has power to foreclose or sell the property if terms of trust are broken
• May require Property Insurance for a specified time period
• May face prepayment penalties to sell if specified period of time has not passed

Qualities of a Mortgage:

• Lender determines if you are in default on the loan
• Lender must go through a legal process posting the foreclosure notice and giving notice about any future auction of the property
• May require Property Insurance for a specified time period
• May face prepayment penalties to sell if specified period of time has not passed

What if I Miss Payments?

In most states, a Deed of Trust can go into foreclosure much faster than a mortgage because there is no need for judicial involvement in the process. However, in Texas there is no real difference in this way.

In Texas, whether Deed of Trust or Mortgage, the speed of the foreclosure is determined by whether there is a “power of sale” clause in the documentation of the agreement.

Power of Sale Clause

According to Texas Law, “lenders may foreclose on deeds of trusts or mortgages in default using either a judicial or non-judicial foreclosure process. The judicial process of foreclosure, which involves filing a lawsuit to obtain a court order to foreclose, is used when no power of sale is present in the mortgage or deed of trust.”

Whether you have a traditional mortgage loan from a lender or a deed of trust, the life of your loan is not generally different in Texas. Because foreclosure can happen so quickly with either type of deed, making payments on time each month is even more crucial. 

Seek Help

If you find yourself with questions about what type of deed you have or what clauses may be included, consult an experienced real estate attorney who will understand the language of your contract and can explain it clearly.

You don’t have to go through complicated legal struggles alone. If you are facing a foreclosure, many attorneys offer a free consultation. The law surrounding mortgages and deeds of trusts in Texas can be confusing, but an attorney who specializes in real estate will know and understand the latest legislation that can help you fight an unjust foreclosure.