Which States Are Deed of Trust States?

More than half of the states in the United States use a deed of trust to secure the promissory note to real estate. State law determines which security instrument can be used: a mortgage or a deed of trust. According to RealtyTrac, 30 states and the District of Columbia use this security instrument in real estate transactions.

Function

To purchase real estate, a borrower signs a note to the lender for an agreed-upon amount under agreed-upon terms and conditions. To secure the note, the lender requires the borrower to sign a security instrument such as a mortgage or a deed of trust. The deed of trust involves three parties; the lender, the borrower and a trustee. The trustee holds title to the property, conveyed by the borrower to the lender. The title stays in trust until the loan is paid off or the property reverts back to the lender.

Deed of Trust States

The deed of trust is currently used in Alabama, Alaska, Arkansas, Arizona, California, Colorado, District of Columbia, Georgia, Hawaii, Idaho, Iowa, Michigan, Minnesota, Mississippi, Missouri, Montana, Nevada, New Hampshire, North Carolina, Oklahoma, Oregon, Rhode Island, South Dakota, Tennessee, Texas, Utah, Virginia, Washington, West Virginia, Wisconsin and Wyoming.

FHA Mortgagee Letter 2009-13 dated April 10, 2009 clarifies that New Mexico should also use the deed of trust for residential real estate transactions.

Significance

In foreclosure proceedings, state law determines whether the procedure is judicial (mortgage instrument) or non-judicial (deed of trust). More states are converting to the deed of trust as a measure to expedite foreclosure proceedings. The deed of trust contains a power of sale clause which allows the trustee to begin a foreclosure procedure outside the court system

Considerations

Signing a deed of trust gives title, or ownership, of the property to a trustee, who acts on behalf of the lender; however, the homeowner has the right and privilege to live in, use and enjoy the property.

Warning

If the loan secured by a deed of trust becomes delinquent, the lender can request that the trustee foreclose on the property in order to be paid or acquire title to the property. Unlike a mortgage, a deed of trust allows foreclosure to proceed without going through the courts.

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