What is a Deed of Trust Drafting?
A deed of trust is a legal document to secure a loan in a real estate transaction. It works by transferring a property title to a third party temporarily, until the borrower repays the loan to the lender.
Read the rest of this article to explore what information is typically included in a deed of trust, how the deed of trust process works, its pros and cons, and how a lawyer can help you draft a legally valid deed of trust.
What Information Does a Deed of Trust Contain?
A deed of trust usually contains important information, such as the following:
- Original loan amount. This is the total amount that a borrower borrows from the lender and has to repay.
- Property description. This is a legal description of the real estate property, such as its address and lot number. It has to be accurate because it serves as collateral.
- Listing of parties involved in the transaction. This provides details of the parties, such as the borrower, lender, and trustee.
- Loan maturity date. This is the deadline by when the borrower needs to repay the loan.
- Fees. There could be fees linked to the loan, such as closing costs and recording fees.
- Default provisions. This explains consequences should the borrower not make their payments. The trustee might go ahead with a non-judicial foreclosure.
How Does a Deed of Trust Work?
The process of a deed of trust generally follows these steps:
1. The lender provides the borrower with funds they need to buy the property.
2. The borrower gives the lender a promissory note. In this document, the loan terms are detailed and the borrower promises to repay the debt.
3. The property rights are transferred from the borrower to a third party, known as a trustee.
4. The trustee maintains the deed until the borrower repays the loan to the lender.
5. Once the loan is paid, the deed is transferred to the borrower.
What are Pros and Cons of a Deed of Trust?
There are advantages and potential pitfalls associated with a deed of trust.
Pros
- Working with a neutral third party. The trustee is a neutral third party that helps the borrower feel that the property is being managed correctly until they pay the loan off.
- Quicker foreclosure. If the borrower does not pay the loan, a lender can initiate a non-judicial foreclosure which is a quick process.
- Lender security. Since the property can be loan collateral, it can make lenders more willing to approve the loan because they’re protected if the borrower doesn’t pay it off.
Cons
- State limitations. There can be state restrictions for deeds of trust or different regulations for borrowers to know about.
- Complex wording. Deeds of trust can be dense with legal and financial terms that can be challenging to understand.
- Property loss. Borrowers risk losing their property if they default on payments.
What are Tips for Drafting a Deed of Trust?
When drafting a deed of trust, it’s important to consider some tips to make it transparent and valid.
Include the Principal Amount
The principal amount should be included, along with the interest rate and payment schedule. The deed of trust must also be aligned with the promissory note.
Set Grace Periods
Consider if the deed of trust contains fair grace periods for any late payments so that default conditions aren’t too harsh or broad. This also serves to encourage constructive communication and negotiations between the borrower and lender.
Outline Party Duties
The deed of trust should include all duties that the parties must fulfill. For example, the borrower must keep the property in good condition and pay property taxes. As for the trustee, one of their duties will be processing foreclosure proceedings should the borrower default.
Keep it Legally Compliant
A deed of trust must take state laws into account, as these can vary quite a bit from each other. There could be different rules for deed of trust requirements and foreclosure proceedings. By checking and understanding all local laws, you’ll keep the document legally valid and enforceable.
Record the Deed of Trust
All parties must sign the deed of trust, and then it must be recorded with your local government office. Recording it provides a layer of protection for the document.
How Can a Lawyer Help You with a Deed of Trust Drafting?
Hiring a lawyer to help you with drafting your deed of trust is important because a lawyer will be aware of all the relevant state laws and regulations to keep your document valid.
Other ways in which they’ll help you with the drafting process includes:
- Preventing errors that could make the deed of trust challenging to enforce in future.
- Drafting clear and accurate terms so all parties understand their rights and duties. This prevents misunderstandings and disputes.
- Reviewing all property details so that the description is accurate.
- Explaining all your legal obligations so you understand everything prior to signing.
- Helping you to record the deed of trust properly to protect all parties.
- Negotiating with the other parties so that all terms are reasonable and balanced. This can help to prevent misinterpretations or frustration that could potentially lead to disagreements.
Where to Find a Lawyer for a Deed of Trust Drafting
If you need to hire a lawyer to draft your deed of trust, you might wonder where to find one who’s reputable and experienced. Online legal platforms make it easier to hire the right lawyer.
On ContractsCounsel, one of the largest online legal marketplaces, you’ll have access to a curated network of vetted lawyers who can help you draft your contracts.
When you wish to ask a lawyer on the platform to draft your deed of trust, simply follow these online steps.
1. Go to the ContractsCounsel marketplace, where you can post your project (or request) for free. Include a few details of what you need so you’re directed to the most appropriate lawyers.
2. Wait for lawyer bids. You’ll receive multiple bids from lawyers directly on the platform.
3. Review the lawyers' profiles based on data provided by the platform, such as their location, client ratings, years of experience, and field of expertise.
4. Hire a lawyer you think is best suited to your requirements. They’ll draft your deed of trust so it’s legal and transparent.