When a mortgage lender extends you the money to purchase your home, it requires a security interest in your property that takes priority over all others. To secure its seniority, it obtains a first trust deed on your property. In the event you default on your mortgage loan, the first trust deed ensures your lender's priority during a foreclosure action, effectively eliminating all other junior liens that may exist.
A first trust deed established a mortgage lender's right of ownership for your property in the event that you default on your loan.
Defining a Trust Deed
One of the documents you signed during your mortgage loan closing was a trust deed, which listed three parties: you (as borrower), your lender and the trustee. Trustees are frequently title companies, whose roles and responsibilities under the trust deed include holding your property in trust as security for your loan, and facilitating the recording of the trust deed in the public real property records where your home is located. The recording of the trust deed perfects your lender’s senior lien status. Upon paying your mortgage loan in full, the trustee will convey the property back to you and remove the first trust deed lien from your property.
Exploring Property Records
Once your lender’s trust deed is recorded against your property, its lien will appear in the public real property records until such time as the trustee conveys your property back to you. In the event you decide to take out a home equity loan, a title search will be done to determine who has an existing trust deed against your home. Upon seeing your mortgage lender’s first trust deed, the document you sign to pledge your home as collateral for your equity loan will become a second trust deed – hence the term “second mortgage."
Understanding the Foreclosure Process
In the event you default on your mortgage loan, the trustee of your lender's first trust deed has the power to initiate foreclosure proceedings, as specified in the language contained within the document itself. The trustee can conduct the foreclosure action, on your lender's behalf, without a court ruling. Any junior lienholders, such as the lender of your second mortgage, are at risk of losing their security interest in your home at the foreclosure sale.
Deeds and Low Risk Assessments
From a lender's perspective, there is low risk associated with a first trust deed, as there are virtually no other threats to its security position, with the exception of delinquent real property taxes and IRS liens. Most liens that attach to a home after the first trust deed is recorded become junior liens, and generally, a junior lienholder can only clear a senior lien from the property if they pay the debt secured by the senior lien in full.
A default on a junior lien prompting aggressive collection action, such as foreclosure, renders the junior lienholder responsible for paying off the remaining mortgage loan balance if they want to own the property free and clear of encumbrances.
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