WHY Trust Deeds
Legal Title transferred to a Trustee, as security
A Trust Deed, also known as a Deed of Trust, is a deed wherein legal title in real property is transferred to a trustee, which holds it as security for a loan (debt) between a borrower (trustor) and a lender (beneficiary).
Recorded evidence of and security for debt
Trust Deeds are recorded in the county where the property is located as evidence of and security for the debt. The act of recording provides constructive notice to the public that the property has been encumbered. When the debt is fully paid the lender (beneficiary) is required by law to promptly direct the trustee to transfer the property back to the trustor by reconveyance, thus releasing the security for the debt.
Trust Deeds vs. Mortgages
The basic difference between the mortgage as a security instrument and a Deed of Trust is that in a Deed of Trust there are three parties involved, the borrower, the lender, and a trustee, whereas in a mortgage document there are only two parties involved, the borrower and the lender
Faster Foreclosure with Trust Deeds
With Trust Deeds foreclosure is often faster and less expensive than with Mortgages if a borrower fails to repay or meet the terms of their loan. Faster foreclosure timelines lead to more certainty of recovering principal, interest and foreclosure expenses.
Non-Judicial vs. Judicial Foreclosure
A nonjudicial foreclosure process is typically used in states that use deeds of Trust, including California. In a nonjudicial foreclosure, the lender can foreclose without going to court which shortens the foreclosure timeline, typically less the one year and as short as five months.
Judicial foreclosures exist where the foreclosure must go through the state court system and are typical in states that have Mortgages as the security instrument.
Judicial Foreclosures lead to longer foreclosure timelines which can be more than a year and up to three years in New Jersey. The following five states have exceptionally long foreclosure timelines: NJ, NY, FL, HI and IL, averaging from 830 days to 1,103 days.