In Colorado, the preferred method to secure loans against real property is a deed of trust, which is given as security for the debt. This is a type of secured real estate transaction used instead of mortgages, whereby a borrower takes out a loan from the lender, and a borrower promises to repay the loan through the promissory note. The deed of trust is a document that ties the promised payment to a specific real property. This is the case even if one of the owners isn’t on the loan, they must still execute the deed of trust. They must give their consent to have their interest in the real property encumbered by the deed. This is precisely why non-borrowing spouses, who are also on the title to the property, are asked to execute the deed of trust at closing.
While the word “deed” is in the name, the deed of trust isn’t considered a conveyance. Instead, it’s considered to be a lien on real property. The powers of foreclosure and sale found within a given deed of trust follows the promissory note. Thus, when the promissory note is secured by real property, a deed of trust is transferred to another. The deed of trust and power it wields are automatically transferred to the current policy holder. This process is commonly known as the “lien theory.” Consequently, a deed of trust isn’t required to be assigned to be endorsed or transferred to another party in the state of Colorado. This means the deed of trust follows the note.
Colorado is the only state in the nation to have a public trustee system, resulting in all deeds of trust being required to name the public trustee for the respective property’s county as trustee. If the deed of trust identifies a private trustee or any person other than a public trustee as trustee, the deed of trust will be regarded as a mortgage for all purposes and it will be foreclosed only as mortgages are foreclosed through the courts. Deeds of trust can utilize the non-judicial foreclosure process through the courts. Conversely, a mortgage may only be foreclosed through the courts.
Assured Title Agency often sees prior deeds of trust not released from record despite underlying debt having been satisfied. Colorado state stipulates that the release of a lien can be achieved if a debt is satisfied within 90 days of the loan being paid in full. Even with the statue in place, many lenders have neglected to release their deeds of trust. The state of Colorado has a Race-Notice recording notice, which means that instruments affecting real property gain priority “first in time, first in right” as they’re recorded with a few exception for mechanic’s liens and taxes, among other things.
For this reason, a deed of trust is subject to other interests in the property that exist at the time of recording. Exceptions include purchase money mortgages and the doctrines of equitable subrogation. Unreleased deeds of trust make visible issues because of this Race-Notice situation. This Race-Notice situation leads to unreleased deeds of trust presenting issues. Rather than the current lender’s deed of trust being in “first priority position,” it’ll instead be behind the released deed of trust. Unreleased deeds of trust situations pose marketability of insurance risk and title issues. They can be time-consuming to investigate and difficult to correct, but most title insurance companies will do their best to assess the risk and make efforts to clear titles so that their insured(s) can be secure in their loan or purchase.
It’s Assured Title Agency‘s hope that this article offers a clearer understanding of deeds of trust and its closing components and issues. The information presented offers a glimpse into the nature of deeds of trust but isn’t necessarily comprehensive. It’s merely available to address common issues related to deeds of trust in order to help facilitate a better understanding of the use and release of a deed of trust as it relates to the settlement, home title insurance, and the closing.
Assured Title Agency is a Denver, Colorado-based title insurance company dedication to provided the highest quality customer service and peace of mind when conducting complex real estate transactions. Be sure to visit our websites: and . #titleinsurance #Denver #BeAssuredNow