Trust Deed Requirements

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  The trust deed, also referred to as the deed of trust, is the modern day form of a mortgage. As a practical matter, there is very little difference between a trust deed and a mortgage. However, some states still operate exclusively under mortgage laws. If your state is a mortgage state, a trust deed may not be legally effective. Other states allow lenders to use either mortgages or trust deeds. Typically, the big advantage of a trust deed is that the lender can foreclose on the property without the need for judicial approval. Many states still require that mortgage foreclosure be approved by a judge before a foreclosure can take place.
  
  

Promissory Note

• A trust deed is only half of a mortgage loan. The trust deed is the security agreement that gives the secured party (the lender) the right to foreclose in the event of default. Of course, this assumes there is an underlying debt obligation upon which default may occur. So, the first requirement of a trust deed is that the secured party be owed an obligation. This is most commonly accomplished through a promissory note. For example, if you borrow $100,000 from the bank, you will sign a promissory note promising to repay the $100,000 over a certain period of time and at a certain interest rate. You will then sign a separate document called the trust deed. The trust deed must reference the promissory note, and provide that the lender has the power of sell (the right to foreclose) in the event of nonpayment, or default, under the promissory note.
  
  

Secured Property

• A security interest under a trust deed legally "attaches" to an item of property. For most people, this property is a home or other piece of real estate. For example, if you borrow money from a bank to buy your home, the bank will require a trust deed on your home. Your home is the secured property. The trust deed must accurately and sufficiently describe the secured property. Most of the time, this is accomplished by specifically listing the street address or location of the secured property, along with a legal description and a parcel or tax ID number.
  
  

Notarized Signature

• Another technical requirement for a trust deed is that it be signed by the person who owns the secured property. This person is referred to as either the Grantor or the Trustor. Additionally, since a trust deed attaches to real property, the trust deed will need to be recorded in the county land records. All states require signatures to be notarized by a public notary before the signed document can be recorded.
  
  

Trustee and Beneficiary

• The final requirement for a trust deed is that the trust deed specifically identify a Trustee and a Beneficiary. The Trustee is often a title company, attorney or trustee's department of a bank. The Beneficiary is the lender under the promissory note. In the event of default on the underlying promissory note, the Trustee is the person or entity that actually handles the foreclosure on the trust deed.