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Wednesday, June 6, 2007

Understanding Contract Terms

Let me describe the three basic contracts used to secure payment of money owed on a home.
Trust Deed:
A trust deed means just what it says. The deed to the house is held in trust until the balance is paid off. In addition to the trust deed, a promissory note is signed by the person making payments. The note states all terms required of the buyer in paying off the remaining balance. The note is secured by the trust deed. The trust deed document is secured by your home.

A trust deed document involves three people:
1) The Grantor: the grantor is the home buyer. They make you the monthly payments.
2) The Trustee: The trustee holds deed to the house until the balance is paid. If the trust deed goes into default, the trustee is responsible for foreclosing on the house. The trustee would normally be your attorney.
3) The third person on a trust deed is you.

You're referred to as the beneficiary. The beneficiary is the owner of the trust deed & note. They have all rights to the money owed secured by the documents.

Mortgage:
A mortgage does the same thing as a trust deed. However, there is no trustee involved. Again, a promissory note is signed stating how the debt on the mortgage will be paid. A mortgage document involves two people:

1) The Mortgagor: this is the person the home was sold to. They will make the specified payments.
2) The Mortgagee: this is the home seller. They own the mortgage and note, and have all rights to the money owed.

Land Sale Contract:
Land sale contracts can go by many titles in different states; real estate contract, property sale agreement, purchase contract or contract for deed. They all mean the same thing. No promissory note is used. All the terms on how the debt is to be paid are in the contract. Title to the house is held by the seller when using these contracts. When the debt is paid off the seller transfers title to the buyer. The buyer only gets title when you use a trust deed or mortgage.

Some home sellers prefer land sale contracts because they can hold title. If they ever had to foreclose the process is easier. Seek the advice of your attorney on this.

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