When a lender offers a loan to an individual, it may require physical collateral in addition to loan repayment and interest. You may use a short form deed of trust to secure the terms of collateral required for the loan. The collateral a lender requires depends on what the loan is for and the amount.
Deed of Trust
A short form deed of trust is a document used to secure a promissory note, or loan agreement, by using the home of the debtor as collateral. The deed effectively places a lien against the property of the borrower, and is often considered almost identical to a mortgage. Short form deeds of trust are most commonly used by private and commercial parties that lend money secured by a debtor's real estate.
Promissory Note
The promissory note sets the terms and conditions of the loan. It includes the interest rate on the loan, the amount of the loan and the loan repayment schedule. Like any other type of loan agreement, the promissory note is legally binding. The short form deed of trust acts as a form of insurance for the lender to ensure that the borrower adheres to the promissory note conditions and the repayment of the loan.
Lender Rights
A short form deed of trust lender has rights that are very similar to that of a mortgage lender. If the borrower fails to make payments on the loan, the lender has the legal right to foreclose on the borrower's home, per the conditions of the short form deed of trust. Likewise, if the collateral used for the loan consists of a rental property, the lender can also collect any rental income that the property generates and apply it to the outstanding loan balance.
Document
Preparing a short from deed of trust requires a notary's signature and approval, as well as other legal verification. This can be time consuming and expensive for a lender. There are however, many online legal document resources that provide registered legal document assistants who specialize in the preparation of short form deeds of trust.