Who Is the Grantee Under a Deed of Trust?

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Buying real estate, particularly for someone doing it for the first time, can be a challenge. There are several financial documents to read and to sign that have different but necessary uses. A deed of trust is one such document; however, not every state uses it for real estate transactions. A grantor is one of the entities involved with a deed of trust.

Defining a Deed of Trust

A deed of trust is a secured property transaction used in some states in place of a mortgage or home loan. It is different from a property deed. Under a deed of trust, a grantor (or borrower) gives a lender one or more promissory notes. These are legal documents that state the borrower's promise to pay the loan; the trust deed contains the terms of the loan and other significant information.

After the borrower pays off the loan, the lender marks the promissory note "paid in full." The borrower has only a copy of the title while making payments, but receives the original deed of trust when they fulfill their end of the agreement.

Who's Who in a Deed of Trust

The deed of trust allows a lender to have recourse if there is a default on a loan payment. It involves three parties – the grantor, the beneficiary and the trustee.

  • Grantor: The entity whose assets are held in trust until payment of the loan occurs. A grantor is also known as a settlor or trustor. The grantor remains the equitable owner as long they keep up their loan payments in the specific manner outlined by the deed of trust. Even though they do not hold the legal title to the property, they do enjoy the same benefits a property owner does.
  • Beneficiary: An entity whose investment or interests the deed protects. This can be a financial lender or an individual.
  • Trustee: While the grantor makes payments on a property loan, the trustee holds the legal title. Title companies are often trustees, but not always. Once the grantor pays the loan off, the trustee dissolves the trust and transfers the title. The trustee is a neutral third party.

If the grantor sells a property before full payment occurs, the trustee will use the sale proceeds to pay the remaining balance to the lender. The grantor can keep the profits if any exist. Grantors who fail to meet their payment obligations and default on their loan will see the property go into foreclosure. When this occurs, it is up to the trustee to sell the property.

Information on the Deed of Trust

The deed of trust includes loan details and the terms and conditions of the agreement between the two parties. Typically, this information consists of:

  • Identity of the parties (the trustee, the grantor, and the beneficiary).
  • Amount of the original loan and its repayment terms.
  • The real property's legal description.
  • Loan's inception and maturity dates.
  • Fees.
  • Acceleration clause: Demand for immediate loan repayment in the event of delinquency. This sometimes occurs after missing one payment; however, lenders may allow a borrower a few months to catch up on delinquent payments. Those that fail to do so will face foreclosure.
  • Alienation clause: Also known as a "due-on-sale" clause, this stops anyone buying a property from taking on a loan under its current terms. If an entity sells the property, it requires full payment of the loan.

A deed of trust may also include a power of sale clause, depending on the state. This is a nonjudicial foreclosure and it allows for a quicker process than if the sale took place in a judicial foreclosure. The process differs by lender and state: Alabama, Alaska, Arizona, Arkansas, California, Colorado, the District of Columbia, Georgia, Hawaii, Idaho, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, North Carolina, Oregon, Rhode Island, South Dakota, Tennessee, Texas, Utah, Washington, West Virginia and Wyoming all recognize power of sale foreclosures.

Defining a Grant Deed

A grant deed transfers ownership of the property from a grantor to a grantee. It implies that the Covenant Against Conveyances guarantees that no property transfer has occurred, except as the deed discloses. The Covenant Against Encumbrances guarantees that no property encumbrance has occurred, except as the deed discloses.

For example, if a grantor signs a contract agreeing to sell land with timber rights to a grantee but sells them to another entity and does not disclose it on a grant deed, the grantee may have a breach of contract claim against conveyances. If the grantor does not reveal any encumbrances against the property, the grantee may have a breach of contract claim against encumbrances. A grant deed must show mechanics liens, judgment liens, tax liens and assessments, mortgages and trust deeds.

Difference Between a Deed of Trust and a Mortgage

The terms "deed of trust" and "mortgage" are sometimes interchangeable, and they may have some similarities, but ultimately, they are different. They are both public and recorded with the county clerk's office, and their terms depend on local and state laws. Neither is an actual loan, but they are contracts that place a lien on a property and detail how a mortgage lender (also known as a mortgagee) can repossess it through foreclosure if the homeowner (or mortgagor )cannot make payments on it.

A deed of trust involves a grantor, grantee and beneficiary, while a mortgage is a contract between a borrower and lender. They also fall under different foreclosure types with different timelines. A mortgage needs a judicial foreclosure, which can take a long time, while a deed of trust is much faster and requires a nonjudicial foreclosure.

How Trust Deeds and Warranty Deeds Differ

Warranty deeds and deeds of trust serve to transfer property titles from one entity to another. However, who they protect is different. The deed of trust protects the lender or beneficiary, while the warranty deed protects the property owner.

When the transfer of a property title occurs by warranty deed, and its ownership goes from the grantor to the new buyer (also known as the grantee), it guarantees that the previous owner wholly owned the property and can legally transfer it. A warrantee of deed guarantees that a new owner will not inherit future claims or liens against the property and lets them know that they own it outright once the title is in their name.

Grantors and Quitclaim Deeds

While a warranty deed guarantees that the grantor or original seller has the right to transfer the property title to a new owner and assures that it has no restrictions or liens, a quitclaim deed does not guarantee the validity of the grantor's authority for transferring the title. However, this type of deed is commonplace when there is some uncertainty regarding the property title.

This is not the only legal context in which grantors exist. In a court order, a grantor is a lawsuit plaintiff. They are also judgment creditors in an abstract of judgment. Some documents do clearly show who the grantor is, but others may only list them in a sale description.

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