Dear Clients, Readers and now Listeners - Happy New Year! I am pleased to introduce The DirtLaw Blog's Primer Podcast Series. It is intended to provide the basics to help the listener better understand mortgage lending topics.
PLAY EPISODE 01 (Length ~4Min)
I include the script below as well for those who prefer to peruse the contents.
Hello and Welcome to Episode 01 of the Dirtlaw Blog’s Primer Series.
Today’s subject is “UNDERSTANDING YOUR LOAN DOCUMENTS” and I am your host, Julia Wei, real estate attorney in
For any Californian either buying a home or investing in a trust deed, it is critical to understand the two major components of your loan documents.
The primary document is the Promissory Note. This is the “debt” instrument. It is essentially an IOU wherein the borrower agrees to repay the lender the money he or she borrowed to purchase the property. Occasionally it is also called “Loan Agreement” or just “Agreement” when part of a Home Equity Line of Credit.
A promissory note by itself is merely a contract. It is memorializing promises between two parties to perform something. If you are the borrower and you fail to honor the contract, it is a breach of the contract. If the bank or lender only has a promissory note with the borrower, it is an unsecured loan and in order to enforce the debt instrument, the bank or lender would have to sue the borrower for breach of contract.
That can be a messy and time-consuming process for the bank, which is why banks also have the borrower execute a Deed of Trust. Other states have “mortgages” but technically,
The Deed of Trust is a document that is usually publicly recorded and secures the performance of the obligation under the Promissory Note. It is the “security instrument.”
The Promissory Note is a 2-party agreement, it involves only the lender and the borrower. However, the Deed of Trust is a 3-party agreement. The borrower is the “trustor”, the lender is the “beneficiary” and those two parties have designated a “Trustee”.
The Deed of Trust contains the power of sale and is the basis for what is known as the non-judicial foreclosure sale.
The Deed of Trust is really a transfer of title from the borrower/Trustor to the Trustee for the benefit of the lender/Beneficiary. “If I, the borrower do not pay my obligations under the Promissory Note, I have given title to the Trustee such that the lender/beneficiary can notify the Trustee that they may sell my house (which is also the collateral) to satisfy the debt.”
When the obligations under the Promissory Note have been satisfied, then the Deed of Trust can be reconveyed, with a Deed of Reconveyance which rescinds the power of sale from that Deed of Trust and the borrower owns the property free and clear of that Deed of Trust.
The Promissory Note and the Deed of Trust are just two documents, and hardly seems to account for that big stack of papers that borrowers must sign at the title company’s office to close escrow.
That is because both state and federal law require multiple disclosures that must be provided as well to the borrower. These disclosures will be the topic for Episode 2 of the Dirtlaw Blog’s Primer Series – “Reading Your Loan Disclosures”
Thank you for listening and this concludes the podcast.