A Trust Deed Sale occurs when a borrower fails to make payments on a loan secured by a trust deed, a legal instrument used in many states as an alternative to a traditional mortgage. Unlike judicial foreclosures that involve court proceedings, trust deed sales operate through a non-judicial process managed by a neutral third party called a trustee. This trustee holds the legal title to the property during the loan term and has the authority to sell the property if the borrower defaults.
The trust deed arrangement involves three parties:
- The Borrower (also called Grantor or Trustor), who secures the loan.
- The Lender (Beneficiary), usually a bank or lender providing the loan.
- The Trustee, a neutral party (often a title or escrow company) that holds the title and oversees the sale if necessary.
When the borrower misses payments (typically after 90-120 days), the lender instructs the trustee to record a Notice of Default (NOD) at the county recorder’s office. This public notice formally starts the foreclosure process and usually triggers a reinstatement period—commonly around 90 days—during which the borrower can pay all overdue amounts plus fees to halt the sale. You can learn more about the Notice of Default process and its implications.
If the loan is not reinstated, the trustee records a Notice of Trustee Sale (NTS) detailing when and where the public auction will occur. Notices are also posted on the property, published in local newspapers, and recorded publicly, providing transparency and warning to all parties involved.
On the auction day, the property sells to the highest bidder, usually requiring cash or certified funds. If no bids cover the loan amount, ownership transfers to the lender as Real Estate Owned (REO). Subsequently, eviction proceedings may occur if the previous homeowner remains.
Trust deed sales have a significant impact on several parties:
- Borrowers risk losing their homes.
- Lenders aim to recover their loans efficiently.
- Trustees facilitate the sale legally.
- Potential buyers can acquire properties below market value at auction.
- Junior lienholders are paid only after primary lenders, usually resulting in little recovery.
Borrowers facing a trust deed sale should act promptly: contact lenders to explore options like loan modifications, forbearance, or repayment plans (Loan Modification is critical here). Housing counseling from HUD-approved agencies can provide free, expert guidance.
Key misconceptions to avoid include thinking a trust deed sale is identical to judicial foreclosure—it generally is faster and non-judicial—and that foreclosure clears all debts, since deficiency judgments may still apply. Understanding state-specific laws on redemption periods or protections can also provide critical advantages.
Overall, knowing the stages, rights, and possible interventions in a Trust Deed Sale empowers borrowers to act before it’s too late. For related topics, see our comprehensive Foreclosure glossary entry.
References:
- Investopedia: Trust Deed https://www.investopedia.com/terms/t/trustdeed.asp
- Consumer Financial Protection Bureau: Avoiding Foreclosure https://www.consumerfinance.gov/consumer-tools/mortgages/avoid-foreclosure/
- California Courts: Foreclosure https://www.courts.ca.gov/22197.htm
