Definition of 'Trustee' in Real Estate

One of the duties of a trustee is to auction off homes in foreclosure.

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A trustee in real estate isn't the same as a person acting for and managing a living trust. Some states, such as California, use a deed of trust to ensure payment of home loans instead of a mortgage. If you've got a deed of trust securing your home loan, you'll have a trustee named on the document. The trustee can take action regarding your home, so you need to know what his role is.


The deed of trust involves three parties: the trustee, the lender and the borrower. The borrower signs a deed of trust when he gets the home loan. The deed gives the trustee, a third party, ownership interest in the home. The trustee acts as the lender's agent and must take steps to secure the property if the borrower defaults on the loan.


The trustee holds legal ownership of the borrower's home in trust until the loan is paid off. Once the loan is paid and the lender notifies the trustee, he deeds the home to the borrower. The lender has claim to the home if the borrower stops paying the loan before it's fully paid off because the trustee is only acting as an independent third party. A deed of trust often includes a power-of-sale clause. The clause allows the trustee to foreclose on the home and sell it at public auction by using the state's legal procedures if the borrower defaults.


A trustee is legally obligated to act impartially and in good faith. He can't act with bias for the borrower or lender while he's serving as trustee. He's responsible for following the correct procedures and trying to recoup as much of the lender's losses as possible at the auction if he has to foreclose. The other parties may sue the trustee in civil court if he fails to meet his obligations.


State laws vary on trustee selection. In some states, a trustee can be any person or legal entity as long as they're not related in some way to the lender or borrower, such as a title company. However, some states require the use of an elected official, often called a public trustee. The lender names the trustee in the deed of trust document, and the trustee has to agree to it.