Purchasing a home is an experience in new terminology. A loan is called a loan except when it’s for real property or your new home. Then it’s called a mortgage. Because of the expense of a home, paying cash isn’t usually an option. When you borrow money to buy a home, you need to sign several forms at closing to get the keys. You sign documents that allow the lender take the house if you don’t make the payments -- a mortgage lien or deed of trust. That’s where the mortgage trustee enters the scene.
There are two types of loans: secured and unsecured. A credit card loan is unsecured; a mortgage is a secured loan. The house and property secures a mortgage loan. If you don’t make the mortgage payments, you agree that the lender can take the house and property. Some states use a lien process, while others use a deed of trust with a mortgage trustee. The foreclosure usually can’t start until you’re 60 or 90 days behind in house payments, and you can stop the foreclosure if you catch up payments before the lender completes the process. The lender owns the house after completing the foreclosure process.
The mortgage trustee is not the lender or the borrower. The trustee is a third party who holds the property in trust until you make the last payment. A title company is the most common trustee, according to the Legal Information Institute at Cornell University. The deed of trust is the document you sign to give the trustee the authority to hold the property. Whether your state includes a lien in the mortgage document or a deed of trust, the objective is the same. The documentation secures the promissory note and gives the lender protection from your failure to pay.
A deed is not the same as a deed of trust. The deed is the conveyance document from the original owner to you that is signed at closing. It transfers the property to you and is recorded in the county clerk's office or records office for your area.
Judicial and Nonjudicial Foreclosure
Some states require judicial foreclosure, meaning a lawsuit is filed with a judge approving the process. Other states allow non-judicial foreclosure with a power-of-sale clause in the deed of trust. Several states allow both processes. In states using a deed of trust, you agree at the closing to allow the sale by signing a promissory note and a deed of trust. Nonjudicial foreclosure allows a faster foreclosure process to get your house and property out of your hands and back on the market for sale. The lender notifies the mortgage trustee of your default, and then the trustee gives notice of default and notice of sale and schedules the trustee’s sale.
Once you complete payments on the house and pay off the mortgage, the mortgage trustee releases the deed of trust and files a document with the county property records conveying all interest in the property to you. The lender has no more interest in the property, and you own it free of the first mortgage at this point. You might have a second mortgage or a home equity line of credit independent of the first mortgage and the deed of trust.
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