In states using deeds of trust, a trustee is a third party who holds legal title to a property until the homebuyer or commercial developer pays off a loan associated with the parcel—or until the borrower defaults.
When a state’s law allows for deeds of trust as instruments to hold legal title to a property:
- A lender financing the sale or development can easily exercise the right to foreclose.
- Foreclosure occurs not through the court, but under the power of sale clause in the deed of trust. (This allowance for non-judicial foreclosure differentiates deeds of trusts from mortgages and some land contracts.)
The main thrust is to lower risk for lenders. Perhaps it’s no wonder that deed of trust states rarely go to bat for a borrower fighting foreclosure.
In this analysis, we’ll look at the trustee’s narrow liability under the deed of trust (not to be confused with a living trust, in which a trustee must comport with exacting fiduciary duties.)
We’ll also review a recent case in point, involving a commercial borrower in California.
Finally, we’ll look at the exception that proves the rule: North Carolina.
Continue reading “You Have One Job: The Narrow Duty of a Trustee Under a Deed of Trust”