The first trust deed is the document which gives a mortgage lender the right to foreclose on a home if the owner does not live up to his end of the mortgage agreement. This deed holds priority over all other loans associated with the home. Since it is the superseding document, the borrower must meet the terms of the first trust deed before satisfying any other loan obligations on the home. Once the loan is paid back in full, the agreement is complete and the trust deed is removed by the lender.
Many people who wish to buy a home lack the funds necessary to meet the significant price that is usually attached. As a result, a potential home owner usually has no recourse other than a mortgage loan. Though a small down payment is generally required, the remainder of the purchase price of the home is paid by a mortgage lender. The home-buyer pays off the rest, which includes regular interest payments, over a period of time determined at the start of the process. A first trust deed is the document that gives the lender the right to take the house if the buyer defaults on his loan obligations.
It is important to note that the first trust deed differs from the promissory note, another mortgage document which specifies the terms of the loan agreement. The trust deed holds legal weight, and the lender must produce it to begin foreclosure proceedings. Included in the document are the names of the borrower, who is known as the trustor, the beneficiary, which is the lender, and the trustee, which is usually a title company that holds the deed.
In terms of importance, the first trust deed is the ultimate document in mortgage proceedings. It cannot be issued if there are any other liens out on the property in question. All prior debts and liens associated with the home must be settled before a lender will issue this document.
Any lender holding a first trust deed not only has the right to foreclose on the home, but they also receive precedence in terms of being paid back. Should a home-buyer take out a second mortgage or other loan to pay off the initial loan, the second lender would have to take a secondary role in collecting behind the initial lender. The holder of the second trust deed would also cede the right to foreclose to the first lender. As a result, secondary lenders usually charge much higher interest fees to compensate for the greater risk of default and the lack of security on the loan.