Mortgages
You are probably already familiar with mortgages. When you buy a house and don’t have enough cash to pay for the house in full, you get a mortgage. You apply for a mortgage through the bank, or a mortgage broker, and the bank loans you the money to buy the house. In Arizona, they are technically called Deeds of Trust.
When you look up mortgages online at the county recorder’s office in Arizona, you won’t find mortgages anywhere. When you want to know who owns the house you look for a Deed. A deed of trust won’t tell you who owns the house. It will tell you who loaned the money to buy the house.
This is confusing, but a fact of life.
Deeds of Ownership
When you buy a house, the prior owner gives the buyer a Deed. The Deed is recorded in the county recorder’s office so everyone knows who the current owner is. Realtors can see ownership on their MLS Service. This information is also available online through certain recorder’s offices throughout the country. When I ask my clients for ownerships documents, Deeds, they almost always send me a copy of the Deed of Trust.
Warranty Deed
A warranty deed is a deed where the seller promises the buyer of the property that they really own the property they are selling. Because our state uses Title Companies, the title company checks to make sure the seller is telling the truth. That is important when you spend hundreds of thousands of dollars to purchase a property.
In states where title companies are not used, lawyers specializing in real estate, are used instead.
Quit Claim Deed
A Quit Claim Deed is a deed which states that the seller is transferring the property to the buyer, but NO PROMISES ARE MADE. That means, someone can sell you something they don’t own, because they are not breaking their promise. A title company solves this problem as well.
Deeds of Trust
A Deed of Trust reflects the promise made by the buyer that they will repay the loan on the property. The term mortgage is a familiar term. Deed of Trust is not. Just know, they are pretty much the same thing, with some technical exceptions. I am not going to explain the technical exceptions. Lawyers usually use the word mortgage because it is the common name. Remember Deed of Trust equals Mortgage.
So, when the lawyer asks…
So, when the lawyer asks you to give them a copy of the deed, remember the lawyer is looking for a Warranty Deed, Community Property Deed, Joint Tenancy with Rights of Survivorship deed. These deeds tell the lawyer who owns the property.
When the lawyer asks for the mortgage, if the lawyer is in Arizona, the lawyer really wants a copy of the Deed of Trust.
Transferring Mortgages and Deeds of Trust
The original deed of trust that you sign when you buy a house, can be bought, and sold. Not by you. Banks and mortgages companies are in the business of buying and selling loans. So even though Family Bank gave you the money to buy your house, 2 years later you are writing checks to Big Business Bank. If you wonder why, there are several reasons.
Banks get Bought and Sold
If Family Bank is sold to Big Business Bank, then all of the deeds of trust owned by Family Bank are transferred to Big Business Bank. Your permission is not required. In fact, you probably gave your permission to Family Bank on one the 25 pages you signed at the closing.
Sometimes banks merge with each other. The merger is the same to the person who gave the bank the deed of trust. The deed of trust is transferred to the merged bank. No permission needed.
Banks Sell Mortgages and Deeds of Trust
Even if Family Bank did not get bought out or merged, there is a huge secondary market for deeds of trust and mortgages. Banks buy and sell deeds of trust and mortgages every day of the week. Once again you probably gave your permission to Family Bank to sell the loan to somebody else. The check you write is the same amount. The mailing address and name of bank can change over the life of the loan.
How does this relate to estate planning?
Your estate planning attorney needs to know who owns your home. Do you own your home? Does your trust own your home? Does someone else’s trust own your home? Does a deceased relative own your home? Depending on the answer to those questions, your estate planner will use this information in the design of your estate plan. If you own your home, you can transfer it into your trust. If your home is owned by your parent’s trust, the transfer to your control, may not be that simple.
Your estate planning attorney also needs to know, who holds the deed of trust to your home? Your ability to transfer the property into you trust, can sometimes depend on federal law, state law, or the rules established by the lender way back when.
Due on Sale Clause
Every deed of trust and mortgage issued today almost always has a due on sale clause. The due on sale clause says, before you can sell your house to an outside third party, you need to pay back the lender, in full. If you don’t pay off the lender in full, the lender can call the whole amount of the loan due and payable. So, if you have a deed of trust in the amount of $100,000 and you are paying the bank $1,000 a month, if you trigger the due on sale clause your next month’s mortgage payment might be full amount remaining on the loan. Plus, penalties. Plus, interest.
That’s why the estate planning attorney needs to know. We don’t want the due on sale clause to be used.
Remember
Deed of Trust equals mortgage. It is not about ownership it is about loans against your home. You need to know, and your attorney needs to know.
Do you know if you have a mortgage or a deed of trust?