When a person purchases real estate, the seller signs a deed that transfers ownership. If the buyer borrows money, he must sign a legal document from the bank or other lender who is providing the loan for the property. Most states call the loan document a mortgage, but some states, including Texas, use a deed of trust.
Parties
Unlike a mortgage, where there are two parties, the borrower and the lender, there are three parties to a deed of trust. Texas is a "title theory" state, which means that the property remains in trust until the loan is satisfied (paid in full). Therefore, the parties are the borrower, called the trustor, the lender, called a beneficiary, and the trustee. The trustee holds the title to the property until the loan is paid in full.
Requirements
The deed of trust must contain certain information to be valid in Texas. All parties must be listed on the deed. The deed must also have the loan amount and all repayment terms, including payment amounts and due dates. The property address, including a legal description with metes and bounds defining the property line, must be listed on a deed of trust. Lastly, procedures for late and missed payments must be set forth, including the trustee's rights if the borrower/trustor is in default.
Procedures
The trustee is usually an escrow or title company that holds title to the property while the loan is in repayment. When the loan is paid in full, the trustor is responsible for transferring the title to the borrower. A new property deed is drawn up and ownership is conveyed from the trustee to the trustor/owner. The trustor's ownership is then free and clear.
Foreclosure
The trustee is also responsible for foreclosing on the property if the borrower/trustor does not make payments. The deed of trust allows for a non-judicial foreclosure and gives the trustee the "power of sale." This means that when a borrower is in default, the trustee must send notice demanding payment of the past due amount within 20 days. If the trustee's demand is ignored, the trustee must send notice of the pending foreclosure sale on the 21st day and file the same notice with the county clerk. The foreclosure sale will take place at the courthouse on the first Tuesday of the month.