Hypothecation: The Trust Deed

When creating an hypothecation mortgage, some states encourage the use of a trust deed in place of an ordinary mortgage or promissory notes. They are common in states such as Maryland, where the title theory of hypothecation mortgages is used. There are several parts to the trust deed mortgage, all of which must come together to make the complete note.

Parties in the Trust Deed

There are a number of signatories to the trust deed, including the borrower, known as the trustor; the lender, called the beneficiary, and the third party, or trustee. The borrower takes the title of the property, and conveys it to the trustee. They hold it securely until the mortgage is complete. Any time that the mortgage is not paid in full, or if the borrower defaults for another reason, the trustee passes the title to the beneficiary, or uses power of sale.

Power of Sale or Re-conveyance

This clause in the trust deed allows the trustee to sell the property if the borrower defaults. Due to the trust deed, the trustee does not need to go to court. If the borrower does pay in full, then the lender will return the trust deed back to the trustee, including a note of re-conveyance which instructs the trustee to return the property title to the borrower.

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