assignment of rents deed of trust

Partnership

Sole proprietorship, limited partnership, compare businesses, employee rights, osha regulations, labor hours, personal & family, child custody & support, guardianship, incarceration, civil and misdemeanors, legal separation, real estate law, tax, licenses & permits, business licenses, wills & trusts, power of attorney, last will & testament, living trust, living will.

• Share Tweet Email Print

REAL ESTATE LAW

What is a deed of trust with assignment of rents.

By Rebecca K. McDowell, J.D.

February 24, 2020

Reviewed by Michelle Seidel, B.Sc., LL.B., MBA

Learn About Our Review Process

Our Review Process

We write helpful content to answer your questions from our expert network. We perform original research, solicit expert feedback, and review new content to ensure it meets our quality pledge: helpful content – Trusted, Vetted, Expert-Reviewed and Edited. Our content experts ensure our topics are complete and clearly demonstrate a depth of knowledge beyond the rote. We are incredibly worried about the state of general information available on the internet and strongly believe our mission is to give voice to unsung experts leading their respective fields. Our commitment is to provide clear, original, and accurate information in accessible formats. We have reviewed our content for bias and company-wide, we routinely meet with national experts to educate ourselves on better ways to deliver accessible content. For 15 years our company has published content with clear steps to accomplish the how, with high quality sourcing to answer the why, and with original formats to make the internet a helpful place. Read more about our editorial standards .

• What Is a Corporate Assignment of Deed of Trust?

A deed of trust is a written instrument granting a lien on real property. While slightly different from a mortgage, they are functionally nearly the same. Some states use deeds of trust instead of mortgages while others allow both. Either way, a deed of trust used to secure a commercial loan may also include an assignment of rents , which gives the lender the right to collect rental income from the property in the event of default.

What Is a Deed of Trust?

A ​ deed of trust ​ is a document that a borrower may execute in favor of a lender to give the lender a lien on a parcel of real estate. Like a mortgage, a deed of trust secures the loan by allowing the lender to foreclose on the real estate if the loan isn't paid (although in some states that use deeds of trust, a foreclosure isn't necessary).

​ Read More: ​ How to Research a Deed of Trust

Deed of Trust vs. Mortgage

A deed of trust is very similar to a mortgage in that it pledges property to secure a loan. A mortgage, however, is simpler; the property owner executes a mortgage document in favor of the lender, and the lender records the mortgage and has a lien , but the property owner still holds title to the property.

A deed of trust, on the other hand, grants an actual ownership interest in the property to a trustee, who holds the property in trust for the lender until the obligation is paid.

What Is an Assignment of Rents?

An ​ assignment of rents ​ is extra security granted to a lender that provides a commercial loan. Commercial loans are loans that are not made for family or household use but for business purposes.

When a borrower grants a mortgage or deed of trust on real estate and the real estate has tenants who pay rent, the lender can demand an assignment of rents in addition to the mortgage or deed of trust.

The assignment of rents means that if the borrower defaults on the loan, the lender can step in and collect the rents directly from the tenants.

Deed of Trust With Assignment of Rents

A deed of trust may contain an assignment of rents clause for that same property. In addition to a clause in the deed of trust, the lender may also require the borrower to execute a separate document called an "Assignment of Rents" that is recorded with the register of deeds.

Whether the assignment is written in the deed of trust only or is also contained in a separate document, it is binding on the borrower as long as its language is clear and sufficient to create an assignment under state law.

Exercising an Assignment of Rents

When a lender decides to collect the rents on the borrower's property, the lender is said to be exercising the assignment of rents. The lender cannot exercise the assignment unless the borrower has defaulted on the loan. Once that happens, the lender can send a written demand to the tenant or tenants, requiring that the rents be paid directly to the lender.

Absolute Assignments of Rents

An assignment of rents most likely will contain language that the assignment is an ​ absolute assignment ​. In most states, an absolute assignment gives the lender an immediate interest in the rents. This means that the lender actually owns the rents and is simply allowing the borrower to collect them on license until an event of default. Once a default occurs, the lender can intercept the rents without taking any court action; a letter to the tenants is all that's needed.

Every state's laws are different; the law of the state where the property is located will dictate how a lender can exercise an assignment of rents.

​ Read More: ​ What Is the Difference Between a Deed and a Deed of Trust?

• Companies Incorporated: Mortgage States and Deed of Trust States
• American Bar Association: Commercial Real Estate FAQs
• Schulte Roth & Zabel: Sixth Circuit Upholds Assignment of Rents to Secured Lender
• Findlaw: California Civil Code - CIV § 2938
• Legal Beagle: What Is the Difference Between a Deed and a Deed of Trust?
• Legal Beagle: How to Research a Deed of Trust
• Legal Beagle: Documents Needed to Refinance a Mortgage
• Legal Beagle: How to File a Property Lien

Rebecca K. McDowell is a creditors' rights attorney with a special focus on bankruptcy and insolvency. She has a B.A. in English from Albion College and a J.D. from Wayne State University Law School. She has written legal articles for Nolo and the Bankruptcy Site.

Related Articles

• Who Can Act As Trustee in a Texas Deed of Trust?
• The Definition of a Leasehold Deed of Trust
• How to Waive Right of Redemption After Foreclosure

Assignment of Rents – What, Why, and How?

Article by:

Madelaine prescott, esq., share this post:.

• November 29, 2023

These days, almost all commercial loans include an Assignment of Rents as part of the Deed of Trust or Mortgage. But what is an Assignment of Rents, why is this such an important tool, and how are they enforced?

An Assignment of Rents (“AOR”) is used to grant the lender on a transaction a security interest in existing and future leases, rents, issues, or profits generated by the secured property, including cash proceeds, in the event a borrower defaults on their loan. The lender can use the AOR to step in and directly collect rental payments made by the tenant. For an AOR to be effective, the lender’s interest must be perfected, which has a few fairly simple requirements. The AOR must be in writing, executed by the borrower, and recorded with the county where the property is located. Including an AOR in the recorded Deed of Trust or Mortgage is the easiest and most common way to ensure the AOR meets these requirements should it ever need to be utilized.

When a borrower defaults, lenders can take advantage of AORs as an alternative to foreclosure to recoup their investment. With a shorter timeline and significantly lower costs, it is certainly an attractive option for lenders looking to get defaulted borrowers back on track with payments, without the potential of having to take back a property and attempting to either manage it or sell it in hopes of getting your money back out of the property. AORs can be a quick and easy way for the lender to get profits generated by the property with the goal of bringing the borrower out of default. But lenders should carefully monitor how much is owed versus how much has been collected. If the AOR generates enough funds so that the borrower is no longer in default, the lender must stop collecting rents generated by the property.

Enforcement of an AOR can also incentivize borrowers to work with the lender to formulate a plan, as many borrowers rely on rental income to cover expenses related to the property or their businesses. Borrowers are generally more willing to come to the table and negotiate a mutual, amicable resolution with the lender in order to protect their own investment. A word of warning to lenders though: since rental income is frequently used to pay expenses on the property, such as the property manager, maintenance, taxes, and other expenses, the lender needs to ensure they do not unintentionally hurt the value of the property by letting these important expenses fall behind. This may hurt the lender’s investment as well, as the property value could suffer, liens could be placed on the property, or the property may fall into disrepair if not properly maintained. It is also important for lenders to be aware of the statutes surrounding the payment of these expenses when an AOR is being used, as some state’s statutes require the lender to pay certain property expenses out of the collected rents if requested by the borrower.

In addition to being shorter and cheaper than foreclosure, AORs can be much easier to enforce. In California, the enforcement of an AOR is governed by California Civil Code §2938. This statute specifies enforcement methods lenders can use and restrictions on use of these funds by the lender, among other things. Under CA Civil Code §2938(c), there are 4 ways to enforce an AOR:

• The appointment of a receiver;
• Obtaining possession of the rents, issues, profits;
• Delivery to tenant of a written demand for turnover of rents, issues, and profits in the correct form; or
• Delivery to assignor of a written demand for the rents, issues, or profits.

One or more of these methods can be used to enforce an AOR. First, a receiver can be appointed by the court, and granted specific powers related to the AOR such as managing the property and collecting rents. They can have additional powers though; it just depends on what the court orders. This is not the simplest or easiest option as it requires court involvement, but this is used to enforce an AOR, especially when borrowers or tenants are uncooperative. Next is obtaining possession of the rents, issues, profits, which is exactly as it seems; lenders can simply obtain actual possession of these and apply the funds to the loan under their AOR.

The third and fourth options each require delivery of a written demand to certain parties, directing them to pay rent to the lender instead of to the landlord. Once the demand is made, the tenant pays their rent directly to the lender, who then applies the funds to the defaulted loan. These are both great pre-litigation options, with advantages over the first two enforcement methods since actual possession can be difficult to obtain and courts move slowly with high costs to litigate. The written demands require a specific form to follow called the “Demand To Pay Rent to Party Other Than Landlord”, as found at CA Civil Code §2938(k). There are other notice requirements to be followed here, so it is essential to consult with an experienced attorney if you are considering either of these options. California Civil Code §2938 specifically provides that none of the four enforcement methods violate California’s One Action Rule nor the Anti-Deficiency Rule, so lenders can confidently enforce their AORs using the above methods with peace of mind that they are not violating other California laws.

Whether you are looking to originate a new loan, or you are facing a default by your borrower, understanding what an Assignment of Rents is and how it operates can be extremely beneficial. Enforcing an AOR can be an easier option than foreclosure and can help promote a good relationship with your borrower when handled correctly. If you have any questions about AORs, or need further details on how to enforce them, Geraci is here to help.

Conversion of Investment in Loan Receivables to an REO Via Foreclosure

By Staford François, Partner, CohnReznick  The recent macro-economic environment has led to significant changes in the private credit space. Most loan operators have seen their

Things to Avoid in your Debt Funds

The popularity of funds in private lending has surged significantly in recent years. Geraci LLP, known for its expertise in this realm, has been instrumental

Distressed Debt Funds – Why they’re different?

In the past year, many private lenders have inquired about pursuing a non-performing debt fund strategy. However, they have many misconceptions that these funds can

Compliance Guidelines for Fund Filings and Operations

Private lenders, real estate developers, and other private investors often raise capital through private offerings using SEC registration exemptions such as Regulation D of the

• (949) 379-2600
• 90 Discovery, Irvine, CA 92618

Subscribe to our Newsletters

Receive attorney-authored articles, legislative updates, webinar reminders, magazines, and more straight to your inbox. Choose the newsletters below you’d like to receive.

CONNECT WITH US

Copyright 2024 geraci llp.

MANAGING YOUR MONEY

2022 tax center.

• Share It Share Tweet Post Email Print

What Is a Deed of Trust With Assignment of Rents?

6 Tips to Save Using the Most Popular Food Delivery Apps

Some states refer to a voluntary lien against real property in exchange for money as a mortgage, while others refer to it as a deed of trust. Both mortgages and deeds of trust may incorporate an assignment of rents and leases that allows the lender to collect rent money held by,or due to, the property owner by tenants once the owner defaults or fails to make payments. An assignment of rents and leases may also be recorded as a separate document.

Absolute Assignment

A lender may require a borrower to execute an absolute assignment of rents in conjunction with a deed of trust. This conveys the rents to the lender at the time of the assignment but, in actuality, allows the borrower, as a licensee, to continue to collect the rents so long as the deed of trust is not in default. Payments under an absolute assignment will ordinarily be paid to the borrower or owner of the property as long as the loan secured by the deed of trust is not in default.

Collateral Assignment

In a collateral assignment, the borrower is generally considered to retain ownership of the rents until the lender takes action to enforce the assignment or gains possession of the property through foreclosure. One concern for the lender in this instance is that, in a judgement, other creditors will take priority, causing the lender to lose its security interest in the rent.

Rights After Default

Under an absolute assignment, if a borrower defaults on the deed of trust, the lender may request appointment of a receiver to collect the rents until foreclosure of the deed of trust or a determination of ownership of rents by a court of law. This prevents the borrower’s disposing of rent money due the lender, pending foreclosure. Under a collateral interest, however, some bankruptcy courts have held that the rents belong to the borrower until title to the real estate merges with the right to collect rents. If this is the case, and the borrower continues to operate as a debtor-in-possession of the property under bankruptcy, the lender may not be entitled to receive any rent money unless or until the bankruptcy court allows foreclosure of the property.

Uniform Assignment of Rents Act

Due to the inconsistency in interpretation of state law pertaining to assignment of rents and leases, some states have adopted a Uniform Assignment of Rents Act that better clarifies how rent monies will be handled in the event of default under the deed of trust and loan documents. The uniform act generally strengthens the lender’s position by recognizing his interest in rent money pending foreclosure and bankruptcy proceedings.

• Agentxtra.net: Assignment of Rents, Leases and Profits
• Polsinelli Shughart: Exercising an Assignment of Rents: Who is Entitled to the Money?
• Andrews Kurth, LLP: Texas Enacts the Texas Assignment of Rents Act
• Much Shelist: Assignment of Rents in Illinois: Shaky Ground for Commercial Lenders

Marie Murdock has been employed in the legal and title insurance industries for over 25 years. Murdock was first published in print in 1979 and has been writing online articles since mid-2010. Her articles have appeared on LegalZoom and various other websites.

Deed Of Trust: What It Is And How It Works

Updated: Mar 2, 2023, 3:15am

Buying property usually comes with an avalanche of paperwork. It can be a confusing process, especially when it comes to knowing the difference between the various documents you sign. If there’s one contract that’s important to understand, however, it’s the deed of trust.

Depending on your lender and the state you live in, you may or may not need a deed of trust when financing a home purchase. Here’s what you should know about this contract and how it differs from a mortgage .

What Is a Deed Of Trust?

When you finance the purchase of a property, you will sign either a mortgage or deed of trust—but not both. You can take out a mortgage in all 50 U.S. states, while a deed of trust is only available in some states.

A deed of trust is a legal document that secures a real estate transaction. It works similarly to a mortgage, though it’s not quite the same thing. Essentially, it states that a designated third party holds legal title to your property until you’ve paid it off according to the terms of your loan. Deeds of trust are recorded in public records just like a mortgage.

How Does a Deed of Trust Work?

A deed of trust exists so that the lender has some recourse if you don’t pay your loan as agreed. There are three parties involved in a deed of trust: the trustor, the beneficiary and the trustee.

The three parties involved in a deed of trust for a real estate transaction are a:

• Trustor. This is the person whose assets are being held in the trust, also known as the borrower (i.e., you). The title to your home is held by the trust until the loan is paid off. Even so, you remain the equitable owner as long as you keep paying the loan according to the terms outlined in the deed of trust. That means you enjoy all the benefits of being the homeowner, such as the right to live there and gain equity, even though you aren’t the legal title holder.
• Beneficiary. The beneficiary is the party whose investment interest is being protected. Usually, that’s the lender, though it also can be an individual with whom you have a contract.
• Trustee. The trustee holds the legal title of the property while you’re making payments on the loan. Trustees often are title companies, but not always. Once you’ve paid off your loan, the trustee is responsible for dissolving the trust and transferring the title to you.

If you sell the property before it’s paid off, the trustee will use proceeds of the sale to pay the lender the remaining balance (you keep the profits). If you fail to meet your payment obligations and default on the mortgage, the property would go into foreclosure , and the trustee would be responsible for selling the property.

What Is Included in a Deed of Trust

A deed of trust includes many important details about your property, loan and related terms and conditions—much of the same information you would find in your mortgage. Typically, you’ll find the following outlined in a deed of trust:

• The names of the parties involved (the trustee, trustor and beneficiary)
• The original loan amount and repayment terms
• A legal description of the property
• The inception and maturity dates of the loan
• Various clauses, such as acceleration and alienation clauses
• Any riders regarding the clauses outlined

It’s common for a deed of trust to include acceleration and alienation clauses. If you’re delinquent on your loan, it can trigger the acceleration clause—essentially a demand for immediate repayment of the loan. Depending on the terms, this can happen after missing just one payment, though lenders often give a few months of leeway to allow the borrower to catch up on payments. If you fail to do so under the terms outlined in the acceleration clause, the next step is formal foreclosure proceedings.

An alienation clause is also known as a due-on-sale clause and it prevents anyone who buys the property to take on the loan under its current terms. Instead, the alienation clause would dictate that the loan must be paid in full if you sell the property.

Depending on your state, the deed of trust may also include a power of sales clause. This allows for a much faster foreclosure process than if your lender had to involve the state courts in a judicial foreclosure. That said, you won’t be foreclosed on overnight under a power of sales clause; the exact process differs by state and lender. Still, if you’re facing a nonjudicial foreclosure, it can happen in a matter of months. If you want to formally fight the foreclosure, you’ll need to hire a lawyer.

States that allow power of sale foreclosures include: Alabama, Alaska, Arizona, Arkansas, California, Colorado, District of Columbia, Georgia, Hawaii, Idaho, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, North Carolina, Oregon, Rhode Island, South Dakota, Tennessee, Texas, Utah, Washington, West Virginia and Wyoming.

Faster, easier mortgage lending

Check your rates today with Better Mortgage.

Deed of Trust Vs. Mortgage

The terms “deed of trust” and “mortgage” are often used interchangeably, but they’re really two different things. That said, there are also some similarities. To review, here are the key ways a mortgage and deed of trust are similar as well as different.

Similarities

• Public record: Both documents are recorded with the county clerk.
• Subject to state law: The exact terms of a mortgage or a deed of trust depend on the local state law.
• Contracts, not loans: Neither document serves as the actual loan agreement; a deed of trust or mortgage is a contract that places a lien on your property and dictates how your lender can repossess the property through foreclosure.

Differences

• Parties involved: A mortgage is an agreement between a borrower and lender, while a deed of trust involves a trustor, beneficiary and trustee.
• Foreclosure type: A mortgage requires a judicial foreclosure, while a deed of trust allows for a nonjudicial foreclosure.
• Foreclosure timeline: Judicial foreclosure on a mortgage can be a lengthy process, while nonjudicial foreclosure through a deed of trust is much faster.

What’s the Advantage of a Trust Deed Over a Mortgage?

If the borrower defaults, a trust deed makes it possible for the lender to sell the property without having to go to court. With a mortgage, the lender has to file a foreclosure claim in court and secure a judge’s approval to sell the property. This can mean a lot of expenses for both the borrower and the lender.

If you are investing in a real estate project, a trust deed also has a few advantages over a mortgage. This is because the investor is considered the lender in the transaction, and their name is recorded on the trust deed as such. The investor can receive interest on their “loan” and the principal is repaid in full once the property has been built.

Warranty Deed Vs. Deed of Trust

Both a warranty deed and deed of trust are used to transfer the title of a property from one person to another. However, the difference between these two contracts is who is protected. As you now know, a deed of trust protects the beneficiary (lender). A warranty deed, on the other hand, protects the property owner.

When a property title is transferred with a warranty deed, ownership goes from the seller (also known as the grantor) to the buyer (also known as the grantee). The warranty deed guarantees that the previous owners, or grantor, had full ownership of the property and right to transfer it. In other words, it promises that you won’t inherit any liens or future claims against the property. It provides peace of mind that you own the property outright once the title is in your name.

Are Trust Deeds a Good Idea?

Trust deeds could be a good idea if you are an investor searching for options to earn passive income, while also being protected via the deed. However, investing in real estate is unpredictable and returns are never guaranteed. A trust deed does not reduce the probability of default or ensure that you will recoup your initial investment.

Consult with a financial advisor or investment professional before going down this route.

Get Forbes Advisor’s ratings of the best mortgage lenders, advice on where to find the lowest mortgage or refinance rates, and other tips for buying and selling real estate.

Frequently Asked Questions (FAQs)

What is an assignment of deed of trust.

An assignment of trust deed is necessary if a lender sells a loan secured by a trust deed. It assigns the trust deed to whoever buys the loan (such as another lender), granting them all the rights to the property. It is recorded along with the original, making it a matter of public record.

What happens with the deed of trust after you pay off your mortgage?

Once you pay off your loan, the trustee is responsible for releasing the trust and transferring the title to you. You now have full ownership of the home.

Can you sell a house with a deed of trust?

Yes, you can. However, if you are selling the house for less than the loan amount, you will need the lender’s approval. Once the property is sold, the trustee uses the proceeds to pay the lender what they are still owed. The borrower then gets any money that is left over.

How long does a deed of trust last?

A deed of trust, like a mortgage, typically has a maturity date, which is when the loan must be paid off in full. That date will vary transaction to transaction. Sometimes a deed of trust won’t have a maturity date. In this scenario, state law dictates the number of years a deed of trust lasts, anywhere from 10 to 60 years after it was recorded.

What is a purchase money deed of trust?

A purchase money deed of trust secures the funds used to buy the property. It also gives the buyer priority over any liens or encumbrances against them

Does a deed of trust show ownership?

No. A deed of trust is a legal document that secures a real estate transaction. It only shows that a designated third party holds legal title—i.e. ownership—to your property until you’ve paid it off, according to the terms of your loan.

• Best Mortgage Lenders
• Best Online Mortgage Lenders
• Best Construction Loan Lenders
• Best Reverse Mortgage Companies
• Best Mortgage Refinance Companies
• Best VA Loan Lenders
• Best Mortgage Lenders For First-Time Buyers
• Best USDA Lenders
• Current Mortgage Rates
• Current Refinance Rates
• Current ARM Rates
• VA Loan Rates
• VA Refinance Rates
• Mortgage Calculator
• Cost Of Living Calculator
• Cash-Out Refinance Calculator
• Mortgage Payoff Calculator
• Loan Prequalification Calculator
• Mortgage Refinance Calculator
• Zillow Home Loans
• Mr Cooper Mortgage
• Rocket Mortgage
• Sage Mortgage
• Veteran United Home Loans
• Movement Mortgage
• Better Mortgage
• Pay Off Mortgage Or Invest
• Things To Know Before Buying A House
• What Is Recasting A Mortgage?
• After You Pay Off Your Mortgage
• When Should You Refinance Your Mortgage?
• How To Choose A Mortgage Lender?
• Will Interest Rates Go Down In 2024?
• Cost Of Living By State
• Will Housing Market Crash In 2024?
• Best Cities To Buy A House In 2024
• Average Down Payment On a House In 2024
• Largest Mortgage Lenders In The US

Next Up In Mortgages

• Best Mortgage Lenders Of June 2024
• Best Mortgage Lenders For First-Time Homebuyers Of June 2024
• How Much House Can I Afford? Home Affordability Calculator
• Mortgage Calculator: Calculate Your Mortgage Payment
• Rocket Mortgage Review
• USAA Mortgage Review

Mortgage Rates Today: June 19, 2024—Rates Remain Fairly Steady

Mortgage Rates Today: June 18, 2024—Rates Remain Fairly Steady

Examining The Cost Of Living By State In 2024

Mortgage Rates Today: June 17, 2024—Rates Move Down

Mortgage Rates Today: June 14, 2024—Rates Remain Fairly Steady

Mortgage Rates Today: June 13, 2024—Rates Remain Fairly Steady

Casey Bond is a seasoned personal finance writer and editor. In addition to Forbes, her work has appeared on HuffPost, Business Insider, Yahoo! Finance, MSN, The Motley Fool, U.S. News & World Report, TheStreet and more. Casey is also a Certified Personal Finance Counselor. Follow her on Twitter @CaseyLynnBond.

Brai is the founder of SW4 Insights, a public policy advisory firm based in Washington D.C. He has over a decade of experience as a journalist and consultant covering finance and economic policy, with a particular focus on distilling complex topics to inform readers' decision-making.

• Contact Us: (916) 442-4204 Tap Here To Call Us

A Deed of Trust can be Assigned Apart from the Note, and that often occurs just before a foreclosure. But What Does That Mean? Not Much, the Deed of Trust is Inseparable from the Note

Notes and Deeds of Trust are often assigned to different parties. The question posed is what happens if the Deed of Trust alone is assigned ? A typical assignment of the Deed of Trust alone will purport to assign “all beneficial interest under that certain Deed of Trust dated xyz..” But the long-established law in California is clear: the beneficial interest under a Deed of Trust is held by the party who holds the Note (or is entitled to enforce it), without regard to the assignment of the Deed of Trust .

The subject was again addressed by the California Courts in Domarad v. Fisher & Burke, Inc. (1969) 270 Cal. App. 2d 543 ). The Court noted that a deed of trust is a mere incident of the debt it secures and that an assignment of the debt carries with it the security. “The deed of trust is inseparable from the debt and always abides with the debt, and it has no market or ascertainable value, apart from the obligation it secures and that a deed of trust has no assignable quality independent of the debt, it may not be assigned or transferred apart from the debt, and an attempt to assign the deed of trust without a transfer of the debt is without effect. (emph. added)”

In Stockwell v. Barnum ((1908) 7 Cal. App. 413) the Court stated that this Code “is wholly foreign to deeds of trust, which, instead of creating a lien only, as in the case of a mortgage, passes the legal title to the trustee, thus enabling him in executing the trust to transfer to the purchaser a marketable record title. It is immaterial who holds the note. The transferee of a negotiable promissory note, payment of which is secured by a deed of trust whereby the title to the property and power of sale in case of default is vested in a third party as trustee, is not an incumbrancer to whom power of sale is given…” Stockwell @ 417.

And more recently “it has been established since 1908 that this statutory requirement that an assignment of the beneficial interest in a debt secured by real property must be recorded in order for the assignee to exercise the power of sale applies only to a mortgage and not to a deed of trust.” ( Calvo v. HSBC Bank USA, N.A. (2011) 199 Cal.App.4th 118 , 122.)

Why is that? There is a technical difference between the two security instruments. The mortgage only involves two parties –the borrower who grants the power of sale to the lender, and the lender who then holds the beneficial interest in the mortgage plus the power of sale. A deed of trust, on the other hand, involves three parties: the borrower, the lender, and the trustee who is granted conditional title to the encumbered property as well as the power of sale.

Thus, the deed of trust may thus be assigned one or multiple times over the life of the loan it secures. But if the borrower defaults on the loan, only the current beneficiary may direct the trustee to undertake the nonjudicial foreclosure process. “[O]nly the ‘true owner’ or ‘beneficial holder’ of a Deed of Trust can bring to completion a nonjudicial foreclosure under California law.” Yvanova v. New Century Mortgage (62 Cal. 4th 919) (2016)

An Alternative The Commercial Code also provides a mechanism for recording an assignment of the security if there has been an off-record transfer of the note but no recorded assignment of the deed of trust or mortgage. The buyer of the note can record a copy of the transfer agreement whereby the note was acquired, together with a sworn statement that a default has occurred, and in that event may proceed with a nonjudicial foreclosure. ( Cal. Com. Code, § 9607, subd. (b))

Photos: flickr.com/photos/discoveroregon/49807993897/sizes/l/ flickr.com/photos/mlp52/5208316490/sizes/l/ flickr.com/photos/hazphotos/2615058018/sizes/c/

Deed of Trust, Assignment of Leases and Rents, Security Agreement, and Fixture Filing (Pro-Lender Short Form) (With Loan Agreement) (TX) | Practical Law

Deed of Trust, Assignment of Leases and Rents, Security Agreement, and Fixture Filing (Pro-Lender Short Form) (With Loan Agreement) (TX)

Practical law standard document w-007-1336  (approx. 71 pages).