As a real estate attorney, it is very common to hear people use the words, “deed” and “deed of trust” interchangeably, as if they mean the same thing. Let me be very clear: they don’t.They both play very important roles in real estate transactions, but the difference between the two is very significant.
A deed is a title document. It is a document that proves someone has legal title to real property. It is also the document that is used to transfer real property from one person or entity to another. In real estate circles, passing real estate from one to another is usually called a conveyance. Under Texas law, a deed must contain certain terms or language to be effective. The document must contain the name of the grantor, or the term used for the person or entity giving the property; the name of the grantee, which is the person or entity receiving the property, and the grantor’s signature. A description of the property being transferred must also be on the document.
This is not to say this is the only information that should be on a deed, as other problems may arise if it is not done correctly. If you are looking to create a deed, make sure to have it done professionally to avoid problems.
While there are various different kinds of deeds, such as general warranty deeds, special warranty deeds, and deeds without warranty, it is not important right now to understand the difference for purposes of this video. Suffice it to say that a deed is a deed, and the only difference is the type of warranty the seller gives the buyer.
Now let’s move on to the deed of trust. The deed of trust is used generally for financing real estate. It’s the document used in most real estate transactions. As a common example, let’s use aa purchase of our home. Not always, but usually when a home is purchased, it’s done through some type of financing. The deed of trust is a document that protects the lender’s investment. Essentially, the deed of trust allows the lender to foreclose the property at an auction if the borrower does not pay in a timely manner or if the borrower breaches the agreement for other reasons. Some in the real estate field call this document the power of sale.
Does this mean you can’t foreclose a property without a deed of trust? No, not necessarily. The problem with a lender not obtaining a deed of trust in Texas is more about money and time. Without a deed of trust, a lender has to file a lawsuit with the district court and could end up in a process that takes thousands of dollars and that could take 1-2 years to complete. In order to avoid having to wait that long to recoup their investment, the lender instead should have a deed of trust that allows for a quick sale of the property at the county auction.
If you have a chance and would like to know more about this process, please visit our digital library and take a look at our video named “Judicial VS Non-Judicial Foreclosure”. It explains the importance of the deed of trust in more detail.
As a recap of this video, let’s remember the difference between a deed and a deed of trust. A deed is simply the title document that shows who the legal title holder is for a particular property. A deed of trust, on the other hand, is the document that allows a lender to sell the property without court approval if the buyer breaches the agreement.
Please feel free to visit our expanding digital library for more short and informative videos such as this one.
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