The Warranty Deed, the Note, and the Deed of Trust
Updated: Aug 2, 2021
I wanted to take some time to dive into the three most important documents from the purchase of your new home and what they mean to you. The Warranty Deed, the Note, and the Deed of Trust are truly the backbone of any real estate transaction where a loan is involved.
Warranty Deed A Warranty Deed is the legal document which transfers ownership of a piece of real property, a.k.a. a house and the land it sits on, from one owner to the next. And, yes, sometimes it is just the land with no house on it, but they are the same thing for our purposes today. When you sell your home you will sign a warranty deed at the closing. This deed will then be recorded with your local Register of Deeds office or Court Clerk, depending on the way your county is set up, and then the transfer becomes a part of the public records. Recording this document serves several purposes. First, and most importantly, it puts the world on notice as to the rightful owner of the property. It also lets the taxing authority know who is responsible for paying the property taxes. Finally, and most importantly to you the new owner, it provides you with protection from future title issues. In providing the Warranty Deed, the seller is warranting that they legally own the property and that there are no known title issues to the property. The Warranty Deed along, with the Owner’s Title Policy that you receive from your title company as part of the closing, will ensure that you are taking ownership of a property with a clean title. A good example would be if a third-party later came forth and claimed an interest in the property. Note The Note is the actual promise to repay the mortgage loan to the lender. This document will include all of the terms of your loan such as the amount borrowed, the interest rate, the description of the property securing the promise to repay, and the Lender’s info. After the closing the original signed Note is delivered to the Lender / mortgage company who now owns that promise to repay the debt. The owner of the Note holds onto it for the length of the loan. Keeping track of a piece of paper for up to 30 years is a big responsibility. Because of this responsibility and to help ease the burden of holding onto all of those documents, an organization was created called Mortgage Electronic Recording Services (MERS). What is MERS, I hear you asking? MERS was created for a number of reasons. The creation of MERS allowed for the Note to be housed in one central location and not have to be physically moved from owner to owner, thus preventing lost Notes. Lost Notes can become a problem if the Lender can no longer prove ownership by producing the actual document. Another big reason for the creation of MERS arose because every time a mortgage company wanted to sell a loan or transfer the servicing of said loan, they would have to pay a fee to the local county, where the property is situated, to record that transfer. In creating this service, MERS allows the mortgage company to bypass having to record an assignment whenever the servicing or ownership changes hands. Deed of Trust The Deed of Trust is the document that will be signed directly after the Note. The Deed of Trust describes the ways in which the bank or mortgage lender will protect their interest in the promise to repay a.k.a. the Note. This document provides a non-possessive, ownership interest in the property, to the mortgage company, until such time as the debt is repaid. Once the debt is repaid the mortgage company releases the lien. As part of this Deed of Trust, you are entrusting that non-possessory interest in the property to the lender as a way of securing the loan. Should you default on the loan, then per the terms of this deed of trust, you are authorizing the lender to foreclose upon that promise and to take the house as a way of satisfying the loan. Additionally in signing the deed of trust you agree not to destroy or devalue property in a way that would lower the value below that which you borrowed. I hope that this brief overview of these documents can be helpful as you look for your next home to buy or sell. If you feel that this information may help you or a client, please reach out. It is my mission to help others.
Jeremiah L. McGuire