Difference Between a Deed and a Deed of Trust
Many Texans have purchased real estate with assistance through a bank loan. Most Texans may be unaware, however, that Texas is a “deed of trust” state. Deeds of trust operate similarly to mortgages in other states, but with notable differences. It is important for any purchaser of real estate, whether residential or commercial, to understand the legal rights and obligations of the possessor of a deed vs. a deed of trust to a property. Below, we explain how deeds of trust work in Texas. Call a knowledgeable Houston real estate attorney with additional questions or for help with a Texas real estate or business law matter.
What is a Deed?
A deed is a written legal document that conveys title to real property to an individual or entity. The deed is not the actual title to the property–it is the means to convey the property from one owner to the next. A deed typically conveys both legal and equitable title to the property. Legal title concerns ownership and legal or financial rights, while equitable title concerns the use and enjoyment of the property.
Deeds need not be formulaic; they can be specially-crafted for a given transaction between two parties. In that way, a deed can be both a contract between the purchaser and seller and the means of conveying the property. There are, however, certain legal requirements for a deed to be legal and effective, including specific descriptions that must be in the deed as well as public filing requirements.
What is a Deed of Trust?
A deed of trust serves a different purpose than a standard deed. It is meant to create a security interest in a property. A deed of trust serves the same purpose as a mortgage: ensuring that the property is attached to the loan as collateral. If the borrower defaults on the loan payments, the property can be repossessed, sold, and the proceeds used to pay off the loan.
A deed of trust operates a bit differently from a mortgage. In a mortgage, the borrower grants a lien over the property to the lender. A deed of trust grants legal title over the property to a third party, a trustee. The trustee is meant to be a disinterested third party, with duties to both the borrower and the lender. The trustee may be an escrow company, an attorney, or an individual. Lenders typically require an institutional trustee rather than an individual. The borrower retains equitable ownership over the property, meaning that they keep the right to use and occupy the property.
So long as the borrower keeps up with their loan payments, there is no real practical difference between a mortgage and a deed of trust for the borrower. If they default, however, a deed of trust arrangement may allow for a quicker foreclosure and sale process than a mortgage. If the borrower defaults on the loan, the trustee typically has the power to take and sell the property to pay off the loan balance without the need to go to court. There are also specific processes to undergo when a loan is fully paid off to remove the lien and grant the homeowner full ownership rights to the property.
If you need legal assistance with a Texas real estate matter, contact the experienced and professional Texas real estate lawyer at the Houston offices of attorney Leigh Meineke at Stephens | Domnitz | Meineke PLLC by calling 832-706-0244.