Should You Sign a Trust Deed When Selling Your House?

There are lots of details and logistics for homeowners to consider when selling their Birmingham home. From listing to closing, there are a myriad of documents and details to consider. One document that is often part of closing paperwork is a trust deed, and many sellers wonder whether they need to sign a trust deed.

To answer this question, here’s an overview of what trust deeds are, when they are used, and what their purpose is.

What is a Trust Deed?

A deed of trust is a legal document that secures a home loan. It’s part of the loan paperwork and places legal title of a property in the hands of a third-party trustee until the loan is paid off.

A trust deed is similar to a mortgage in that it serves as a way to secure a home loan and provides a way for the lender to put a home in foreclosure if the borrower defaults on the loan. However, there are a couple of key differences between a trust deed and a mortgage.

The first difference is the number of parties involved in the contract. A mortgage involves two parties: the borrower and the lender. Yet, there are three parties involved with a trust deed: the trustor, or buyer; the beneficiary, which is the lender; and the trustee, for example, a title insurance company, that holds legal title of the property.

The second difference is the type of interest held by each party. With a mortgage, a lien is created against the property that gives the lender the option to seize the property and sell it if the borrower defaults. With a deed of trust, the title is placed in the hands of the trustee. If the trustor defaults on the loan, the trustee may initiate foreclosure proceedings. This distinction is important because a deed of trust enables a lender to initiate a nonjudicial foreclosure, which is faster and less expensive than a judicial disclosure, which is required with a mortgage.

Can You Use a Trust Deed in Alabama?

Alabama allows the use of both mortgages and trust deeds. While there are some states that require one of the other, lenders in Alabama have a choice of which to use.

A trust deed is often used when nontraditional lending services are used. Additionally, some lenders prefer to use a deed of trust instead of a mortgage because the foreclosure process is easier, less expensive, and faster.

However, because both contracts are allowed in Alabama, it’s ultimately up to the lender to determine which to use.