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A deed of trust, sometimes called a trust deed, is a security instrument, similar to a mortgage, that allows a property owner to obtain a loan from either a bank, third party lender, or another individual. The lender is called the Grantee in this context and the borrower is called the Grantor. The deed of trust creates a lien on the property to secure the Grantor's promise to repay the loan. Upon execution of the deed of trust, title to the property is transferred to a Trustee, who holds it in trust until the loan is satisfied or the Grantor defaults. The Grantor is usually obligated to pay property taxes, insurance, and maintenance and repairs of the property. The Grantee should file the deed of trust with the county clerk to provide notice of a lien on the property. We receive numerous inquiries every month regarding Deed of Trusts and Promissory Notes. We have experience drafting the financing documents, including wraparounds, handling the foreclosure upon default, drafting Deeds in Lieu of Foreclosure, and giving general advice regarding transactions or disputes.
If the Grantor defaults on the loan, the Trustee is authorized to foreclose on the property with no lawsuit and no judicial oversight. This is called non-judicial foreclosure. The property is sold at public auction and the proceeds will be used to pay back the principal of the loan, any attorney's fees, and foreclosure fees. The Trustee must give any excess proceeds from the sale to the Grantor. If there are no excess proceeds and instead a deficiency, a lawsuit could be filed to recoup the deficiency from the Grantor.
Often at the time of drafting the Deed of Trust, a Real Estate Lien Note is also drafted, which is an agreement for one party (Grantor) to pay the other party (Grantee) a specific amount of money at a specific time. The note, also called a Promissory Note, must identify the parties and include the agreed upon terms of payment, such as the payment schedule and the interest rate.
When the Grantor completes payment on the note, the Grantee is obligated to file as Release of Lien in the real property records of the county clerk's office. Without a Release of Lien, the title to the property is clouded. If the Grantee refuses to release the lien or otherwise cannot be found, a Quiet Title Action will need to be filed to release the lien and remove the cloud from the title.
Drafting financing documents and getting the legal terminology correct can be complex. I've seen clients use premade forms from online in an attempt to save a buck and the results were costly. You need to employ a Texas real estate attorney to assist you in drafting the Deed of Trust, Promissory Note, and Deed with Vendor's Lien.
While Deed of Trusts are very common and widely used in Texas, there are other creative financing options available. Our attorneys can help you determine the best ways to plan your financial future.
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