In the Lone Star State, a deed of trust, or trust deed, transfers interest in real property. It is a security instrument authorizing a foreclosure sale outside of the courtroom in case the grantor or borrower defaults on a loan. If the grantor pays the loan, they get the property back; if they don't, the trustee can foreclose without going to court.
The lender typically names a trustee in the deed to represent themselves and the borrower, which can be an individual or a business entity that meets Texas' requirements for trustees.
What Is a Deed of Trust?
A Texas deed of trust is a legal document used to secure real estate transactions. It is similar to a mortgage in that money is borrowed from a lender in order to buy property. Some states use deeds of trust instead of traditional mortgages, but Texas uses both.
A deed of trust includes certain information:
- Identity of the involved parties.
- Confidentiality notice.
- Description of the debt.
- Legal description of the real property conveyed in the trust.
- Granting clause.
- Grantor’s obligations.
- Rights of the beneficiaries.
- Description of the trustee’s duties.
Deeds of trust and mortgages are both tied to property loans, involve agreements between a grantor and lender, and give the lender a way to foreclose if necessary. However, in a deed of trust, the trustee holds the title, and in a mortgage, the lender does.
Who Is Named in a Deed of Trust?
Three parties are named in a deed of trust. They are:
- Grantor or borrower: Owes borrowed money to the lender, and the property can be used as collateral for the loan. The trustee can sell the property if the borrower defaults on the loan. A settlor, or grantor, prepares a deed of trust. The grantor/borrower does not need to be the homeowner, but the party who signs the deed of trust must own at least some interest in the property. The deed of trust must be in writing with the grantor’s signature and filed at the county clerk's office in the location of the real property. Deeds of trust are public records.
- Trustee: The grantor/borrower authorizes the trustee, such as a corporation, authority over the sale of the property if the grantor does not pay the borrower. A lender has the authority to change a trustee at anytime, but the grantor/borrower does not. A trustee in a deed of trust can be any entity with the legal capacity to transfer or hold real property. If the trustee is a corporation, it must have authorization to act in this capacity in Texas. Texas allows beneficiaries to serve as trustees.
- Grantee or beneficiary: This entity is the lender or the party to whom the money is owed. The lender has authority to ask the trustee to start the foreclosure process in event the borrower defaults on the loan.
Duties of a Trustee in Texas
A Texas trustee on a deed of trust deed has many responsibilities, one of which allows them to sell real property through a [nonjudicial foreclosure](https://guides.sll.texas.gov/foreclosure/the-foreclosure-process#:~:text=A%20non%2Djudicial%20foreclosure%20(also,civil%20lawsuit%20against%20the%20homeowner.) if the grantor defaults on the loan. This type of foreclosure is also known as a power of sale foreclosure – it allows sale of a property without the need for a civil lawsuit.
To qualify for a nonjudicial foreclosure, the deed of trust or other contractual documents must contain a power of sale clause according to Texas Property Code Section 51.002. The trustee can also collect payments from the grantor on the lender’s behalf.
What Is a Promissory Note?
A promissory note is used with a deed of trust specifying the loan amount and payment terms. If, according to its terms, the grantor fails to pay the note, the deed of trust allows the lender to recover money from the sale of the real property, which serves as collateral.
In Texas, real property that has a deed of trust can be sold, but the sale needs approval from the lender. If the home is sold for less than the grantor owes, the lender must also approve the sale. If the proceeds from the sale are more than the amount of the remaining debt, in addition to interest, fees and costs as stated in the note, the trustee must give the remaining money to the grantor.
Other inactions or actions as stated in the note or deed of trust, such as failing to pay homeowners' association fees, can also constitute a notice of default.
Deed's Release After Paying Off the Loan
After the property loan has been paid in full, the deed is released from trust. The lender will issue a deed of reconveyance, a legal document stating that the grantor has satisfied their debt. It releases the property title from the trustee and gives the grantor full ownership of the real property.
The reconveyance is the equivalent of paying off a mortgage in that once full payment is made, the property belongs to the borrower.
- Texas Property Code: Title 9 Trusts Chapter 112 Creation, Validity, Modification and Termination of Trusts
- Texas Property Deeds: Texas Deed of Trust
- Silberman Law: The Texas Deed of Trust
- Texas State Law Library: The Foreclosure Process
- Texas Property Code: Title 5 Exempt Property and Liens, Chapter 51 Provisions Generally Applicable to Liens
- Keller Firm: Texas Deed of Trust – Not Your Average Deed
- Legal Beagle: How to Get a Deed on Property in Texas
- Legal Beagle: How to Remove Your Name From a Deed in Texas
Michelle Nati is an associate editor and writer who has reported on legal, criminal and government news for PasadenaNow.com and Complex Media. She holds a B.A. in Communications and English from Niagara University.