A Trust Deed, is defined as a form of security similar to a mortgage. While a standard mortgage is a two party document in which the borrower makes a conveyance to the lender, a Trust Deed is a three party document where the borrower conveys the land to a third party in trust for the benefit of the holder of the Note or notes that represent the debt. A Trust Deed will indicate that the Note is payable to “Bearer” or “Individual”.
The Trust Deed Advantage & Benefits
A Trust Deed has several advantages over a regular mortgage. First, the person holding the Note secured by a Trust Deed may sell or transfer the Note without the expense of or time of executing and recording an Assignment of Mortgage. The trustee in a Trust Deed remains the same regardless of how many times a Note may be negotiated. The Trust Deed cannot be assigned. The trustee will prepare the Release Deed upon presentation of the original identified Note.
Second, a Trust Deed can secure more than one Note or bond. As a result, use of the Trust Deed can facilitate the borrowing of large sums of money. A borrower may execute one Trust Deed, which secures many notes, thereby enabling the lender to sell or negotiate as many of these notes to various investors as is necessary to avoid a serious cash flow problem.
Third, the owner or holder of a note can protect his identity from the public record.
How Trust Deeds Work
The Trust Deed and Note forms must be completed, executed and acknowledged before a notary public before being presented to Chicago Title Land Trust Company for the purpose of identifying the Note with the Trust Deed. An identification number is assigned to the Note and Trust Deed and all identifications are signed by an officer of the company. This procedure of identification insures that only the proper original Note can be presented for release.
After the Trust Deed and Note have been properly identified, the Trust Deed must be recorded. The Note is retained by the holder in safekeeping until the secured debt is paid in full or until the note holder assigns or sells the Note. The parties may also wish to execute an Assignment of Rents. If so, the document should run to the owner or holder of the Note and should not run to Chicago Title Land Trust Company.
Identification and Release
At the time of identification, Chicago Title Land Trust Company will make a record of information that will help to locate the holder or representative of the holder, when notices pertaining to the Trust Deed are received.
When Chicago Title Land Trust Company is requested to take any action as trustee, it will only do so upon a direction from the holder of the Note, who must present the original Note, duly identified, as evidence that he is the holder.
When the debt has been paid in full, the original Note and Trust Deed are presented to Chicago Title Land Trust Company, at which time the Release will be prepared by the trustee.
Although the payment of a Trust Deed debt discharges the Trust Deed lien, it nevertheless remains on the public records as cloud upon the title until the Release had been recorded.
Should a default occur in the payment of the Note, a foreclosure proceeding would be the appropriate remedy. While a foreclosure proceeding involving a Trust Deed is substantially the same as a proceeding to foreclose a mortgage document, there are some distinctions.
When foreclosing a Trust Deed, the proper defendants would be the trustee and the payor named in the Note or notes secured by the Trust Deed. The proper party plaintiff would be the holders of the Note. The right of redemption exists for a borrower on the Trust Deed just as it does for a borrower under a mortgage document. The statutory right of redemption is set forth in Illinois Revised Statutes, 735 ILCS 5/Art XV.
Sometimes Chicago Title Land Trust Company is shown as the Mortgagee on homeowner’s insurance policies. In such cases, the clause should read, “Chicago Title Land Trust Company as Trustee under Trust Deed Document No. ________.” This assures proper delivery of cancellation notices to the holder of the Note, which is kept on file with the trustee.
It may be desirable to release a portion of the premises conveyed by the Trust Deed, under certain circumstances. When a partial release is requested the Trust Deed and Note or notes must be presented to the trustee with a direction from the owner of the indebtedness to release a portion of the property conveyed. An appropriate endorsement is stamped on the Note or notes and Trust Deed and the Partial Release is executed.
Modification Agreements modify the terms of the Trust Deed generally to change the interest rate and monthly payment. Once the terms are negotiated between the note holder and the borrower, the note holder will draft the Modification Agreement. The Modification Agreement is signed by the borrower and Chicago Title Land Trust Company will consent on behalf of the Note holder.
The consent of the Modification Agreement requires a Letter of Direction signed by the note holder and the original Identified Note so that the endorsement can be placed on the original Note. Same qualifications apply to any and all documents Chicago Title Land Trust Company is requested to consent to on behalf of the note holder.