Can You Sell a House With a Deed of Trust?
If you've ever signed a home loan in Tennessee, you probably signed a deed of trust.
A deed of trust is a type of security for a loan. However, unlike mortgages, deeds of trust name a third-party trustee to hold your property title until it's paid off. The question is, can you sell a house with a deed of trust?
Our East Tennessee home buyer explains how deeds of trust work and whether or not you can sell your house with one here.
What Is a Deed of Trust?
A deed of trust is a legal agreement between the buyer and lender. Some states, like Tennessee, use deeds of trust instead of mortgages. The transaction states that the buyer will repay the loan and a third-party trustee will hold the property title until the loan is paid off.
There are three parties involved in a deed of trust:
- Beneficiary - The beneficiary is the lender, and the deed of trust serves to protect their investment.
- Trustor - The trustor is the homeowner, or borrower, that makes payments on the loan. Deeds of Trust allow homeowners to gain equity on a property while they pay off their loan.
- Third-party trustee - The third-party trustee is typically a title company that holds the home's title until the loan is repaid. The trustee is independent because they don't represent the buyer or seller in a real estate transaction.
What Are a Trustee's Responsibilities?
If the property is sold before the loan is repaid, the trustee uses the sale proceeds to pay back the lender. The homeowner is then awarded the remainder of the money.
Alternatively, if a loan is paid off, before or at the end of its term, the Trustee dissolves the trust and transfers the title to the trustor, or borrower, making them the legal owner.
How Does a Deed of Trust Work?
The homeowner provides the lender with promissory notes in exchange for a deed of trust. A promissory note is a signed document containing the loan terms, such as the agreed-upon interest rate.
The homeowner signs these documents as a guarantee to pay back the lender.
After the loan is repaid, the promissory note is marked "paid in full" and the deed is given back to the lender. While the homeowner is paying off the loan, the lender holds onto the promissory notes. The homeowner can receive copies for their records.
Deed of Trust vs Mortgage
While both mortgages and deeds of trust protect the lender, a mortgage doesn't involve a third-party trustee. With a mortgage, the homeowner gives the legal title directly to the lender. Whereas, a deed of trust always involves a trustee.
Here are a few key differences between deeds of trust and mortgages.
Only Certain States Use Deeds of Trust
Different states use mortgages or deeds of trust to secure real estate loans. Mortgages are much more common, as deeds of trust are only available in certain states, such as:
- District of Columbia
- North Carolina
- West Virginia
Type of Foreclosure
Another difference is the foreclosure type. When you sign a mortgage, you're giving the lender the legal title to your property - at least until your loan is repaid! Because there is no third-party trustee, the lender must receive approval from a judge to foreclosure the property.
If you fall behind on payments with a deed of trust, you face non-judicial foreclosure.
This means the lender doesn't need the judge's consent to foreclose - which saves them time and money when reclaiming your property. Non-judicial foreclosure is not an option for traditional mortgages.
Can You Sell a House With a Deed of Trust?
The short answer is yes. If there's a deed of trust on a property, the homeowner can sell the property and pay off the loan - it's not much different than selling a house with a mortgage.
That said, if you're selling the house for less than what you owe, you'll need approval from your lender. In this situation, the lender must release the deed of trust. However, to do this, you'll need to reach some type of agreement.
The lender has the legal right to collect the amount you owe your loan, no matter how much you make from selling.
In some cases, the lender may require you to sign a new, unsecured promissory note so you can pay the remainder of your loan. If the lender doesn't offer a promissory note, they could release your debt to a collection agency, which can affect your credit.
We Buy Houses With Deeds of Trust
Need to sell a house with a deed of trust in the Greater Knoxville area? If you're looking to sell your house fast, the key is knowing what you owe and working with your lender to get a payoff quote if you'll be selling your home for less than what you owe.
Don't want to make that next payment? Reliant Home Buyers of TN can offer you an as-is sale and can close in a matter of days before your next deed of trust payment is due.
With over two decades of experience, we're prepared to buy your home outright - without any repairing, upgrading, or prepping needed!
So, what do you say? Are you ready to skip the hassle of listing? We buy houses for cash, in any condition or price range.
Get a No-Hassle Quote Today!
At Reliant Home Buyers of TN, we've helped hundreds of homeowners and know the Greater Knoxville market well. Learn how our three-step home buying process works below:
- Contact us - When you're ready to sell, call 865-567-6391 or fill out the contact form. We'll reach out to ask a few questions about your house and reasons for selling.
- Receive a WIN-WIN proposal - After a 15-30 minute walk-through of your property, we'll provide you with a list of needed repairs and estimated costs. If we're interested in buying your house, we'll make a fair cash offer based on your property's condition and location.
- Sell your house fast - Our WIN-WIN proposals also include closing and move-out dates. While there's no obligation to sign our one-page contract, if you do, we'll take the paperwork to a local title company for processing. Once complete, our owner Justin will meet you at the title company to drop off your check.