A deed of trust with assignment of rents is a legal document that replaces the standard mortgage. It is used in a wide variety of financial transactions, including, leases, property transfers and assignment of rents. Deed of trust with assignment of rent gives the lender the right to automatically start collecting rent generated by property if the borrower defaults on the loan payments. Another important element of the trust deed is that it names the trustee who takes legal title to the property. When the document is properly recorded in the county, a lien is then placed on the property and is used as collateral for securing for the loan.
There are generally three parties to a deed of trust assignment of rents contract: trustor, trustee and beneficiary. The trustor is the buyer of the property. The borrower has the traditional rights and privileges traditionally associated with the ownership of rental property, including collection of the rents. The beneficiary is the lender. However, unlike a mortgage, the trustor does not take legal title to the property under the deed of trust. The title to the property is held by the trustee who is the third party to the trust deed.
The trustee is an independent third party. He does not represent the interest of the mortgage lender or the borrower. Many trustees are title companies. The trustee has the legal authority to transfer the property to the borrower after the loan is paid in full. This is accomplished by recording in the county public records a document called a Deed of Release. The trustee also has the power, granted by a Power of Sale clause contained in most deed of trust agreements, to foreclose on the property if the borrower defaults on the loan payment. Proceeds from the foreclosure sale will be applied toward the delinquent loan amount.
Lenders have added protection in the event the borrower becomes delinquent on the loan payments. The assignment of rent, which is included in most mortgages and deed of trust with assignment of rent, gives the beneficiary the legal power and authority to collect rent, other income and profits that are generated by the property. Often, the beneficiary is not required to give notice or go into court in order to exercise this right. If the buyer clears of the default, she might instruct the tenants to once again make rent payments directly to the owner.
When a borrower defaults on the loan payment, the trustee starts the foreclosure process by filing a Notice of Default in the county where the property is located. Typically, the trustee will hire another trustee to carry out foreclosure procedures. This is allowed under the Substitution of Trustee clause contained in most deed of trust agreements. Before the trustee can actually sell the property, the Notice of Default must be in the public records for a minimum of 90 days.This gives the borrower time to cure the default by paying the arrears and other expenses. In addition, the trustee is typically required to published notice in a newspaper for a 21-day period. Once these stipulations are met, the trustee can sell the property without going through the judicial system, according to the Deed of Trust assignment of rents. However, the trustee is obligated to follow state foreclosure laws.