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When buying a new home, there are a lot of legal documents to navigate, and it can be easy to get confused. Two documents that are often mentioned in the home buying process are a deed and a deed of trust. While they may sound similar, they are actually very different. In this blog post, we'll take a closer look at the differences between a deed and a deed of trust, and why it's important to understand the distinction.
A deed is a legal document that transfers ownership of a property from one party to another. It is a document that is recorded at the county recorder's office and serves as proof of ownership. A deed typically includes the names of the parties involved, a legal description of the property, and any restrictions or covenants that apply to the property.
A deed of trust, on the other hand, is a document that creates a lien on a property. It is a three-party agreement between the borrower, the lender, and a neutral third-party called the trustee. The borrower conveys the title of the property to the trustee, who holds it as security for the loan. The lender is entitled to foreclose on the property if the borrower fails to make the required payments on the loan.
The main difference between a deed and a deed of trust is that a deed is a transfer of ownership, while a deed of trust is a security interest. A deed of trust is used to secure a loan, while a deed is used to transfer ownership of a property.
Why it's important to know the difference:
It is important to understand the difference between a deed and a deed of trust because they have different implications. For example, if you are buying a property with a deed of trust, you will be required to make payments on the loan to the lender. If you fail to make these payments, the lender may foreclose on the property. On the other hand, if you are buying a property with a deed, you will be the legal owner of the property, and you will not be required to make payments on any loans associated with the property.
Why people sometimes get them confused:
It's easy to get confused between a deed and a deed of trust because they both relate to the transfer of property, but they are used for different purposes. They are also used at different stages of the home buying process. A deed is typically used at the end of the process, when the property is transferred from the seller to the buyer, while a deed of trust is used at the beginning of the process, when the loan is originated.
When both come into play during the home purchasing journey:
A deed of trust is typically used at the beginning of the home buying process, when the loan is originated. It is used to secure the loan and to give the lender a security interest in the property. A deed, on the other hand, is typically used at the end of the process, when the property is transferred from the seller to the buyer.
If you're a potential home buyer, it's important to understand the subtle but distinct differences between a deed and a deed of trust, as these differences can affect your home buying process. To learn more about the differences between a deed and a deed of trust, reach out to one of our expert loan officers. They can answer any questions you may have and help you navigate the home buying process.