What is a Deed of Trust? (CCP § 2924)

Underwood-Blog-Images-2-300x300A deed of trust is a commonly used mortgage document in California. Essentially, a deed of trust provides a lender with security for the repayment of the loan and effectively functions similarly to a mortgage.  A deed of trust is a deed that transfers a legal interest in a piece of real property owned by the lendee to the lender, or trustee, in order to secure the debt owed on the loan. Certain elements are required for a deed of trust to be valid. These elements are codified in the Code of Civil Procedure, section 2924. 

A deed of trust involves three parties: (1) the trustor, who is the person who received the loan, (2) the beneficiary, who is the person who loaned the money to the trustor, and (3) the trustee, who is the person that released the loan once it has been paid off. At Underwood Law Firm, our attorneys are more than familiar with a deed of trust and the elements required for a valid deed of trust. 

When is it common to have a Deed of Trust?

One of the most common circumstances involving a deed of trust occurs when a person undertakes a loan to purchase a piece of real property and uses a deed of trust on that piece of real property to secure the loan. 

For example, “Nathan” wants to purchase a house in Riverside for $1 million; however, he only has $700,000 saved up for the purchase of the property. Therefore, Nathan decides to get a loan for $300,000 from the “Bank of America.” 

To secure the loan with Bank of America, the parties executed a Deed of Trust on the house that Nathan had just purchased. Once the loan is paid off, the deed of trust will be released, and Bank of America will no longer hold an interest in the house. However, if Nathan defaults on his payments of the loan and fails to pay off the remaining balance of the loan, Bank of America has the option of foreclosure to force the sale of the house so that the remaining balance on the loan is paid off. 

What is required for a Deed of Trust to be valid?

A deed of trust and a mortgage function similarly, and therefore, the formal elements of a deed of trust are similar to those of a mortgage. A deed of trust must be: (1) in writing, (2) contain a description of the property being used to secure the loan, and (3) be signed by the trustor or the borrower. 

Under the Statute of Frauds, a transfer of an interest in real property must be memorialized in writing. Thus, since a deed of trust transfers an interest in real property to the beneficiary, the deed of trust must be memorialized in writing. 

In addition to being in writing, the Statute of Frauds also requires a description of the property. In turn, the deed of trust must contain a description of the property. The property description need not contain every detail concerning the property; it needs only be sufficient to identify the property. (Sepulveda v. Apablasa (1938) 25 Cal.App.2d 381, 387.) Moreover, the deed of trust needs to also contain a sufficient description of the loan secured by the deed of trust. (D’Oyly v. Capp (1893) 99 Cal. 153, 157.) 

Next, the Statute of Frauds requires that the document be signed by the party whom the document is being enforced against. Therefore, a deed of trust needs to be signed by the trustor. 

Lastly, a deed of trust is not required to be recorded; however, in order to be valid, a deed of trust must be delivered to the beneficiary. (Hahn v. Hahn (1954) 123 Cal.App. 2d 97, 101, 266.) 

When is a Deed of Trust Invalid?

There are two main reasons a deed of trust may be considered invalid: (1) lack of required formalities in executing the deed of trust, or (2) there is some fact outside execution that makes the deed of trust invalid. A deed of trust is considered to be void when some fact exists that makes the deed of trust itself defective. For example, a deed of trust is void when the trustor’s signature is forged, or the trust is unaware of the nature of what they are signing. (Schiavon v. Arnaudo Brothers (2000) 84 Cal.App4th 374.) 

A deed of trust is voidable when, although the deed of trust is validly executed, some fact existed during execution that makes the deed of trust voidable. For example, a deed of trust is voidable when, although the trustor is aware of what they are signing, the trustor has been induced into signing the deed of trust through fraudulent misrepresentations. (Fallow v. Triangle Management Services, Inc. 91985) 169 Cal.App.3d 1103, 1106.) 

Is a Promissory Note Required? 

In California, the deed of trust is used in connection with a promissory note. A promissory note sets the terms of the loan and specifies the amount due. Under Code of Civil Procedure section 2936, a deed of trust must come with security. (CCP 2936) In most cases, this security is the promissory note. The note is assigned to the beneficiary in order to secure repayment of the loan. 

How Can the Attorneys at Underwood Law Assist You?

A deed of trust provides security to the lender of a loan to secure repayment of that loan from the borrower. In California, a deed of trust must come with security, typically a promissory note. To be valid, a deed of trust must be (1) in writing, (2) with a description of the property, and (3) signed by the trustor of the deed of trust.   

As each case is unique, litigants would be well-served to seek experienced counsel familiar with the ins and outs of deeds of trust and the law surrounding it. At Underwood Law, our knowledgeable attorneys are here to help. If you are undertaking a deed of trust, are worried about your ability to acquire a deed of trust, or if you just have questions, please do not hesitate to contact our office. 

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