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Real property

deed of trust

A deed of trust is a legal document that transfers ownership of real property (real estate) to a trustee until the person or entity buying the real property repays a loan for the purchase of the real property. A deed of trust is similar to a mortgage—some states use a mortgage and other states use a deed of trust.

In a deed of trust transaction a lender (the bank) gives a borrower (who is purchasing the real property) money to pay the seller, and the borrower gives the lender one or more promissory notes for repayment of the loan. As security for the promissory notes, the borrower transfers the ownership interest (title) in the real property to a trustee—often a title company—to hold until the borrower repays the lender.

If the borrower fails to timely make payments and defaults on the loan, the property generally may be sold without the lender using or going through the court system. This is known as nonjudicial foreclosure and is usually less time-consuming and less expensive for the lender.

A deed of trust is also known as a trust deed, a trust indenture, an indemnity mortgage, or a common-law mortgage.

In Texas, a deed of trust is commonly used in real estate transactions as a method of securing a loan. When a borrower purchases real property, they may sign a deed of trust, which involves three parties: the borrower (trustor), the lender (beneficiary), and the trustee, who is typically a title company. The trustee holds the legal title to the property as security for the repayment of the loan to the lender. The borrower retains equitable title and the right to use and enjoy the property during the loan period. If the borrower defaults on the loan, the trustee has the authority to sell the property through a nonjudicial foreclosure process, which is faster and less costly than judicial foreclosure because it does not require court intervention. This process is governed by Texas state statutes, specifically the Texas Property Code, which outlines the requirements for executing a deed of trust and the procedures for foreclosure.

Texas Statutes & Rules

Federal Statutes & Rules

12 U.S.C. § 1701j-3 - Preemption of due-on-sale prohibitions
This statute is relevant because it addresses the enforceability of due-on-sale clauses, which are often included in deeds of trust and can affect the transferability of the property.

This federal statute provides that a lender may not exercise its option pursuant to a due-on-sale clause upon the transfer of real property securing a real estate loan unless the loan is assumable under the terms of the loan documents. Due-on-sale clauses are provisions in a mortgage or deed of trust that require the borrower to pay the loan in full if the property is transferred. The statute also outlines the conditions under which a lender may, or may not, enforce a due-on-sale clause, thereby affecting the borrower's ability to transfer the property without paying off the loan. It preempts state laws that restrict the enforceability of due-on-sale clauses, making it a significant federal statute in the context of real estate transactions involving deeds of trust.

12 U.S.C. § 2601 et seq. - Real Estate Settlement Procedures Act (RESPA)
RESPA is relevant to deeds of trust as it governs the closing process for residential real estate transactions, which includes the creation of a deed of trust.

The Real Estate Settlement Procedures Act (RESPA) is a federal statute that requires certain disclosures to be made during the real estate settlement process. It applies to federally related mortgage loans secured with a deed of trust or mortgage on residential properties designed for one to four families. RESPA is designed to help consumers become better shoppers for settlement services and to eliminate kickbacks and referral fees that unnecessarily increase the costs of certain settlement services. RESPA requires lenders, mortgage brokers, or servicers of home loans to provide borrowers with pertinent and timely disclosures regarding the nature and costs of the real estate settlement process. It also protects borrowers by prohibiting certain practices, such as kickbacks, and places limitations on the use of escrow accounts.

12 U.S.C. § 1701x - Assistance with respect to housing for low- and moderate-income families
This statute is relevant as it provides assistance that can affect the financing of real estate transactions involving deeds of trust, particularly for low- and moderate-income families.

This section of the U.S. Code authorizes the Secretary of Housing and Urban Development to provide various forms of assistance to increase the availability of affordable housing. It includes provisions for counseling for homeownership and tenancy, which can be relevant to parties involved in a deed of trust transaction. The statute aims to assist families in improving their housing conditions and in managing the financial responsibilities of homeownership, including understanding the terms of deeds of trust and mortgages.

26 U.S.C. § 163 - Interest
This tax code provision is relevant to deeds of trust as it outlines the deductibility of interest, including mortgage interest, which is a significant consideration for borrowers.

Under the Internal Revenue Code, Section 163 allows for the deduction of interest paid or accrued within the taxable year on indebtedness. This includes mortgage interest on a qualified residence, which can be secured by a deed of trust. The statute specifies the conditions under which mortgage interest is deductible, the limitations on the amount that can be deducted, and the definition of a qualified residence. This deduction can affect the financial decisions of borrowers when entering into a deed of trust transaction.

15 U.S.C. § 1601 et seq. - Truth in Lending Act (TILA)
TILA is relevant to deeds of trust as it requires lenders to disclose credit terms and the cost of borrowing to consumers, which can include loans secured by deeds of trust.

The Truth in Lending Act (TILA) aims to promote the informed use of consumer credit by requiring disclosures about its terms and cost. The statute mandates that lenders disclose information such as the annual percentage rate (APR), the terms of the loan, and the total costs to the borrower. TILA also provides for a right of rescission in certain transactions involving the establishment of a security interest in the borrower's principal dwelling, which can include a deed of trust. This right allows borrowers to cancel the transaction within a specific period if they change their minds or find the terms unfavorable. TILA is enforced by the Consumer Financial Protection Bureau (CFPB) and is designed to protect consumers against inaccurate and unfair credit billing and credit card practices.