DEED OF TRUST
A document that embodies the agreement between
a lender and a borrower to transfer an interest in
the borrower’s land to a neutral third party, a
trustee, to secure the payment of a debt by the borrower.
A deed of trust, also called a trust deed or a
Potomac Mortgage, is used in some states in
place of a mortgage, a transfer of interest in land
by a mortgagor-borrower to a mortgagee-lender
to secure the payment of the borrower’s debt.
Although a deed of trust serves the same purpose
as a type of security, it differs from a mortgage. A
deed of trust is an arrangement among three
parties: the borrower, the lender, and an impartial
trustee. In exchange for a loan of money
from the lender, the borrower places legal title to
real property in the hands of the trustee who
holds it for the benefit of the lender, named in
the deed as the beneficiary. The borrower retains
equitable title to, and possession of, the property.
The terms of the deed provide that the transfer
of legal title to the trustee will be void on the
timely payment of the debt. If the borrower
defaults in the payment of the debt, the trustee
is empowered by the deed to sell the property and pay the lender the proceeds to satisfy the debt. Any surplus will be returned to the borrower.
The right of the trustee to sell the premises is
called foreclosure by power of sale. It differs in
several respects from the power of a mortgagee
to sell mortgaged property upon default, which
is called a judicial foreclosure. A foreclosure by
power of sale is neither supervised nor confirmed
by a court, unlike a judicial foreclosure.
While the rights received by a purchaser at a
foreclosure by power of sale are the same as
those obtained at a judicial foreclosure, there is a
practical difference. Since the sale has not been
judicially approved, there is a greater possibility
of litigation over title, thereby making title to the
purchased premises less secure than one purchased
at a judicial foreclosure. In addition, the
lender may purchase the property for sale under
the provisions of a deed of trust, since the neutral
trustee conducts the sale. This is not the case
in a foreclosure, unless contract or statute provides
otherwise, since the mortgagee must act
impartially in selling the property to satisfy the
debt. Some mortgages may, however, provide for
foreclosure by power of sale.
The procedure for a foreclosure by power of
sale is regulated by statute, a characteristic
shared by a judicial foreclosure. All interested
parties must be given notice of the sale, which
must be published in local newspapers, usually
in the public notice columns, for a certain
period of time as required by statute. The sale is
usually open to the public to ensure that the
property will be sold at its fair market value.
A sample deed of trust.
DEED OF TRUST
GENERAL FORM
Deed of trust made on ____________________________________(date), between _______________________________________, of
___________________________________________________________________________________ (address), referred to as trustor,
__________________________________________________________________________________________________________, of
_____________________________________________________________________________________________________ (address),
referred to as trustee, and _____________________________________________________________________________________, of
________________________________________________________________________________ (address), referred to as beneficiary.
Trustor, in consideration of the indebtedness recited below, irrevocably grants, bargains, sells, assigns, and conveys to trustee in trust,
with power of sale, the property in _________________________________________________________________________________
(location and address) described as ________________________________________________________________________________
_________________________________________________________________________________________ (description of property),
together with all the tenements, hereditaments, and appurtenances now or hereafter belonging or in any wise appertaining. To have and to
hold the same, with the appurtenances, unto trustee.
For the purpose of securing performance of each agreement of trustor and of securing payment of the sum of ______________ (amount)
($________) with interest thereon according to the terms of a _________________ (Note or Bond), dated _____________ (month & day),
_____ (year) payable to beneficiary or order and made or executed by trustor, the final payment of principal and interest, if not paid sooner,
to be due and payable on _______________ (month & day),________ (year) at the office of _________________________________, at
___________________________ (address), or at such other place as beneficiary may designate in writing delivered or mailed to trustor.
The terms of the _________________ (Note or Bond) are incorporated by reference.
Trustor covenants and agrees as follows:
1. PAYMENT OF INDEBTEDNESS
1.1 Trustor shall pay the indebtedness, as provided above. Trustor reserves the right and privilege to prepay at any time, without premium
or fee, the entire indebtedness or any part of it not less than the amount of one installment, or ___________________________ (amount)
($_________), whichever is less. Any prepayment made on other than an installment due date will not be credited until the next following
installment due date.
2. OWNERSHIP OF PROPERTY
2.1 Trustor is lawfully seized (in possession) of _______________________________________________________________________
___________________________________________________________________________________________ (description of estate)
and, except as otherwise stated, the premises are free from any encumbrances. Trustor hereby warrants the usual covenants to the same
extent as a statutory _________________________________ (warranty) deed under the laws of _________________________ (state),
and all covenants herein made, and trustor will defend against any breach of any such covenant.
3. CONTINUED EFFECTIVENESS
3.1 The provisions of this instrument shall remain in full force and effect during any postponement or extension of the time of payment of
the indebtedness or any part of it.
4. TAXES AND ASSESSMENTS
4.1 Trustor shall pay all taxes, assessments, water rates, and other governmental or municipal charges, fines, or impositions; and, in
default thereof, beneficiary may pay the same.
5. WASTE; REPAIR OR REMOVAL OF STRUCTURES
5.1 Trustor shall not commit waste or authorize the repair or the removal of any structures on the premises, and shall not do or permit any
act that may lawfully result in the creation of a lien or claim on the land or the improvements of equal or prior rank to the claim of this trust
deed without prior written consent of beneficiary; but shall maintain the property in as good condition as at present, reasonable wear and
tear excepted. On any failure to so maintain, beneficiary, at its option, may cause reasonable maintenance work to be performed at
trustor’s cost.
6. INSURANCE
6.1 Trustor shall maintain continuously hazard insurance of such type or types and amounts as beneficiary may from time to time require
on the improvements now or hereafter on the premises, and shall pay promptly when due any premiums for such insurance. All insurance shall be carried with companies approved by beneficiary, and the policies and renewals shall be held by beneficiary and provide that loss
be payable solely and in form acceptable to beneficiary. In event of loss, trustor shall give immediate notice by mail to beneficiary, who
may make proof of loss if not made promptly by trustor, and each insurance company concerned is hereby authorized and directed to
make payment of the loss directly to beneficiary, rather than to trustor and beneficiary jointly. The insurance proceeds, or any part of them,
may be applied by beneficiary, at its option, either to the reduction of the indebtedness hereby secured or to the restoration or repair of the
property damaged. In the event of a conveyance to beneficiary, or other transfer of title to the premises in extinguishment of the
indebtedness secured hereby, all right, title, and interest of trustor in and to any insurance policies then in force shall pass to the purchaser
or grantee.
7. BENEFICIARY PAYMENT IN EVENT OF DEFAULT
7.1 If trustor defaults in any of the covenants or agreements contained in this trust deed, or in the ____________________ (Note or Bond)
secured by it, then beneficiary, at its option, may perform the same. All expenditures made by beneficiary in so doing shall draw interest at
the rate provided for in the principal indebtedness, and shall be repayable by trustor to beneficiary, and, together with interest and costs
accruing thereon, shall be secured by this trust deed.
8. SUPPLEMENTAL NOTES
8.1 On beneficiary’s request, trustor shall execute and deliver a supplemental note or notes for the sum or sums advanced by beneficiary
for the alteration, modernization, improvement, maintenance, or repair of such premises, for taxes or assessments against the same, and
for any other purpose authorized under this trust deed. The note or notes shall be secured by this trust deed with equal priority and as
fully as if the advance evidenced thereby were included in the ______________ (Note or Bond) first described above. The supplemental
note or notes shall bear interest at the rate provided for in the principal indebtedness and shall be payable in approximately equal
__________________ (monthly) payments for such period as may be agreed on by trustor and beneficiary. On the failure to agree on the
maturity, the whole of the sum or sums so advanced shall be due and payable ___________ days after beneficiary’s demand. In no event,
shall the maturity extend beyond the ultimate maturity of the __________________ (Note or Bond) first described above.
9. RIGHT OF BENEFICIARY TO APPEAR
9.1 Beneficiary may appear in and defend any action or proceeding purporting to affect the security of this trust deed, and trustor shall
pay all costs and expenses, including the costs of evidence of title and reasonable attorney fees, in any such action or proceeding in which
beneficiary may appear.
10. WAIVER OF NOTICE
10.1 Trustor waives notice of the exercise of any option granted to beneficiary in this trust deed or in such _____________ (Note or Bond).
11. CONDEMNATION
11.1 Any award of compensation or damages in connection with any condemnation for public use of or injury to the premises or any part
of them is hereby assigned and shall be paid to beneficiary, who may apply or release such moneys received in the same manner and with
the same effect as provided above for the disposition of fire or other insurance proceeds.
12. NONWAIVER OF RIGHTS
12.1 Beneficiary’s accepting payment of any sum secured by this trust deed after its due date shall not constitute a waiver of its right either
to require prompt payment when due of all other sums so secured or to declare default for failure so to pay.
13. RIGHTS OF TRUSTEE
13.1 At any time or from time to time, without liability therefor and without notice, on beneficiary’s written request and presentation of this
trust deed and such ___________ (Note or Bond) for Endorsement, and without affecting the personal liability of any person for payment
of the indebtedness secured by this trust deed, trustee may: reconvey all or any part of the premises; consent to the making of any map or
plat thereof; join in granting any easement thereon; or join in any extension agreement or any agreement subordinating this trust deed to
subsequent liens or charges.
14. RECONVEYANCE
14.1 On beneficiary’s written request stating that all sums secured by this trust deed have been paid, and on surrender of this trust deed
and such ________________________ (Note or Bond) to trustee for cancellation and retention, and on payment of trustee’s fees, trustee
shall reconvey, without warranty, the property then held under this trust deed. The recitals in any reconveyance accepted under this trust
deed of any matters or facts shall be conclusive proof of their truthfulness. The grantee in such reconveyance may be described as “the
person or persons legally entitled thereto.”
15. RENTS, ISSUES, AND PROFITS
15.1 As additional security, trustor hereby gives to and confers on beneficiary the right, power, and authority during the continuance of the
interests created by this trust deed to collect the rents, issues, and profits of the premises, reserving to trustor the right, prior to any default by trustor in payment of any indebtedness secured by this trust deed or in the performance of any agreement under this trust deed,
to collect and retain such rents, issues, and profits as they become due and payable. On any such default, beneficiary may at any time
without notice, either in person, by agent, or by a court-appointed receiver, and without regard to the adequacy of any security for the
indebtedness secured by this trust deed, enter on and take possession of the premises or any part of them, in its own name sue for or
otherwise collect such rents, issues, and profits, including those past due and unpaid, and apply the same, less costs and expenses of
operation and collection, including reasonable attorney fees, on any indebtedness secured by this trust deed, and in such order as
beneficiary may determine. The entering on and taking possession of the premises, the collection of the rents, issues, and profits, and the
application thereof as stated above shall not cure or waive any default or notice of default under this trust deed or invalidate any act done
pursuant to such notice.
16. DEFAULT; BANKRUPTCY
16.1 On default by trustor in payment of any indebtedness secured by this trust deed, or in performance of any agreement herein
contained, or if trustor is adjudicated bankrupt or made defendant in a bankruptcy or receivership proceeding, all sums secured by this
trust deed shall, at beneficiary’s option, immediately become due and payable. In the event of default, beneficiary shall execute or cause
trustee to execute a written notice of such default and of beneficiary’s election to cause the above-described property to be sold to satisfy
the obligation hereof, and shall cause such notice to be recorded as then required by law.
16.2 On notice of sale as then required by law and elapse of the then-required time period after recordation of notice of default, trustee,
without demand on trustor, shall sell the property at the time and place of sale fixed by it in the notice of sale, either as a whole or in
separate parcels and in such order as it may determine, at public auction to the highest and best bidder for cash, payable at the time of
sale. Trustee may postpone the sale of all or any part of the property by public announcement at the time and place of sale, and from time
to time thereafter may postpone the sale by public announcement at the time fixed by the preceding postponement. Trustee shall deliver
to the purchaser its deed conveying the property so sold, but without any covenant or warranty, express or implied. The recitals in the
deed of any matters or facts shall be conclusive proof of the truthfulness thereof. Any person, including trustor, trustee, or beneficiary, as
defined under this trust deed, may purchase at such sale.
16.3 After deducting all costs, fees, and expenses of trustee and of this trust, including the cost of evidence of title and reasonable counsel
fees in connection with the sale, trustee shall apply the proceeds of the sale to the payment of all sums expended under the trust terms,
not then repaid with accrued interest at the rate provided on the principal debt, all other sums then secured by this trust deed, and the remainder, if any, to the person or persons legally entitled to receive them.
17. APPLICATION OF TRUST DEED
17.1 This trust deed applies to, inures to the benefit of, and binds all parties to this agreement, their heirs, legatees, devisees, administrators, executors, successors, and assigns. The term “beneficiary” shall mean the holder and owner, including pledgee, of the _______________ (Note or Bond) secured by this trust deed, whether or not named as a beneficiary herein. Whenever the context of this trust deed so requires, the masculine gender includes the feminine and/or neuter, and the singular number includes the plural.
18. ACCEPTANCE OF TRUST
18.1 Trustee accepts this trust when this trust deed, duly executed and acknowledged, is made a public record as provided by law. Trustee is not obligated to notify any party to this trust deed of any pending sale under any other trust deed or of any action or proceeding in which trustor, beneficiary, or trustee shall be a party, unless brought by trustee.
19. SUCCESSOR TRUSTEE
19.1 Beneficiary may, from time to time, as provided by statute, appoint another trustee in place of trustee herein named, and on such appointment, trustee herein named shall be discharged and the trustee so appointed shall be substituted as trustee with the same effect as if originally named trustee.
20. MULTIPLE TRUSTEES
20.1 If two or more persons are designated as trustee, all powers granted to trustee may be exercised by any of such persons, if the other
person or persons are unable, for any reason, to act; and any recital of such inability in any instrument executed by any of such persons
shall be conclusive against trustor, or trustor’s heirs and assigns.
___________ (If appropriate, add: ________________________, the ______________ (wife or husband) of trustor, for the above-stated
consideration, hereby relinquishes ___________ (her or his) right of ___________ (dower or curtesy) ______________ (and homestead)
in and to the above-described premises.)
20.2 The undersigned trustor requests that a copy of any notice of default and of any notice of sale under this trust deed be mailed to trustor’s address set forth above.
In witness whereof, trustor has executed this trust deed the day and year first written above.
Signature ________________________________________ Date__________________________________
