Deed of Trust

A Deed of Trust dictates the agreement between a borrowing entity and a lender, to transfer an interest in the borrowing entities’ commercial and/or industrial real estate to a third party (trustee), to secure the payment of note/s by the borrowing entity.

A Deed of Trust, also called a Trust Deed, is used in some states in place of a Security Deed or Deed to Secure Debt, to secure the payment of the borrowing entities’ debt. Although a Deed of Trust serves the same purpose as a typical security deed, it differs from a mortgage. A Deed of trust is an arrangement among three parties (borrowing entity, lender and trustee). In exchange for a loan of money from the lender, the borrowing entity places the legal title to the commercial and/or industrial real estate in the hands of the trustee, who holds it for the benefit of the lender, named in the deed of trust, as the beneficiary. The borrowing entity retains equitable title to and possession of, the property.

A Deed of Trust will provide that the transfer of legal title to the trustee will be void upon timely payment of the note/s. Provided the borrowing entity defaults on the note/s, the trustee is empowered by the deed to sell the property. Proceeds are then used to satisfy the debt and return any surplus to the borrowing entity.

The power of the trustee to sell the premises is called foreclosure by power of sale. This is different from a judicial foreclosure. A foreclosure by power of sale is neither supervised nor confirmed by a court, unlike a judicial foreclosure. Where a sale has not been judicially approved, there is a greater possibility of litigation over the state of title, thus making title to the purchased property less secure than one purchased at a judicial foreclosure.

The procedure for a foreclosure, by power of sale, is regulated by state laws and statutes. In Georgia, Security Deeds and Deeds to Secure Debt also provide for a foreclosure by power of Sale. However, in Georgia, there is no trustee (third party) to the agreement.

 
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