Can You Sell A House With A Deed of Trust?

Have you ever wondered how a house is legally owned? It’s not as simple as just owning the keys. 

A deed of trust is an important legal document used to secure a mortgage. It’s an additional contract between a lender, a borrower, and a trustee. 

A trust deed outlines the terms of the mortgage and the property used as collateral for the promissory note. This way, the lender has a safety net if the borrower defaults on their payments.

Here’s the question: what happens when you want to sell a house tied to a deed of trust? Can you still do it? If so, how does the deed of trust factor into the selling process? 

In this guide, we’ll answer all these questions and help you sell your house with a deed. 

What is a Deed of Trust?

A deed of trust on a house is a legal document used in real estate transactions for home loans in the US. It’s a three-party agreement between a borrower (trustor), a lender (beneficiary), and a neutral third party (trustee).

The trustor transfers the legal title of the property to the trustee as collateral for the loan. Then, the trustee holds the property in trust for the beneficiary. Simply put, a deed of trust is a security tool that allows the trustee and lender to foreclose on the house if the borrower doesn’t complete their loan payments.

Although the trustee may seem like an unnecessary member of the agreement, their role is crucial. They act as a neutral intermediary, making sure both parties follow the terms of the deed of trust. If the borrower defaults, the trustee can start the foreclosure process on behalf of the beneficiary.

Who is the Trustor?

The trustor is the borrower or the deed of trust buyer. When borrowers get a mortgage on their property, they become the trustor. The trustor gives the property’s legal title to the trustee, who holds it in trust for the lender’s benefit.

Does a Deed of Trust Show Ownership of the Property?

No, a deed of trust does not show ownership. It only grants the property’s legal title to the trustee, but the trustor still has the equitable title. This means they have the right to use, possess, and enjoy the property.

These obligations include making timely payments on the loan. If they fail to do so, the trustee can start the foreclosure process on behalf of the lender. Trustors must also maintain the property’s condition and comply with applicable laws and regulations.

Can You Sell a House With a Deed of Trust?

Yes, you can sell a house with a deed of trust.

Many trustors sell their house with a deed of trust and use the sale proceeds to pay off the mortgage or home loan. However, the lender has the right to approve or deny the sale. If the sale price doesn’t cover the loan payment, the lender may need to accept a partial payoff or foreclose on the property.

Here’s how you can sell your home with a deed of trust. 

Step 1: Consult with Your Lender

First, you must inform the lender of your intention to sell the property. They’ll tell you the specific instructions and requirements for the sale process.

For instance, they may specify a minimum sale price they’ll accept. The lender may also have demands for the buyer’s credit score, income, or down payment.

Step 2: Obtain a Pre-Approval Letter

Get a pre-approval letter from a potential buyer to show that you are able to sell the house. This will come in handy when negotiating with the lender.

Step 3: Review the Deed of Trust

Take another look at the terms and conditions of your deed of trust. In some cases, the lender has already defined the restrictions and requirements for selling the property. This way, you won’t waste precious time on buyers that don’t meet the criteria. 

Step 4: Get the Lender’s Approval

Finally, submit the necessary documents to your lender for approval. These may include the purchase agreement, the buyer’s pre-approval letter, and other required information. 

Remember that the lender has the right to deny your request to sell the house. However, you’ll have a better chance if you ensure the sale proceeds cover the loan amount. 

Step 5: Coordinate with the Title Company

You’ll also need to work with a title company to help with the legal aspects of the sale. In most cases, the trustee is the title company. However, some states allow you to choose anyone as a trustee.

They’ll make sure the deed of trust is properly released and that the title to the property is transferred to the new buyer. With all the necessary approvals and documentation in place, you can finally close the sale.

Deed of Trust States vs. Mortgage States

It’s worth noting that certain states allow for deeds of trust, while others only allow traditional mortgages. Kentucky, Maryland, and South Dakota are the only states that will enable both.

While traditional mortgages are more common today, trust deeds are still used in certain regions. Twenty states, including Alaska, Arizona, California, Colorado, Idaho, Illinois, Mississippi, Missouri, Montana, North Carolina, Tennessee, Texas, Virginia, and West Virginia, still require trust deeds for real estate financing.  

Read more about deed of trust states vs. mortgage states here. 

Foreclosures in Deeds of Trust

Unlike a traditional mortgage, the lender doesn’t initiate foreclosure in a deed of trust. Instead, the trustee does it on the lender’s behalf. 

They also initiate it much quicker than usual, typically within three to six months of violating the loan terms. Trust deeds go through non-judicial foreclosures, while mortgages have judicial foreclosures. 

Sell Your Deed of Trust House with Amerinote Xchange Today

It’s entirely possible to sell your house with a deed of trust! However, the only issue is that some lenders may not be willing to negotiate. If that’s the case, you can work with a loan acquisition firm like Amerinote Xchange. 

First, they’ll purchase the mortgage note from the original lender. As they become the new lender, you’ll only have to negotiate with them to approve the property’s sale. Luckily, Amerinote Xchange is much more lenient than traditional buyers.