In California, a deed of trust involves three parties. Who holds legal title until the loan is paid off?
Question & Answer
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The trustor (borrower)
The trustor (borrower) holds equitable title, which includes the right to use and enjoy the property, but not legal title. The borrower grants legal title to the trustee as security for the loan.
The beneficiary (lender)
The beneficiary (lender) holds the loan note and has the right to payment, but does not hold legal title to the property. The lender's interest is in the debt, not the property itself.
The trustee
The title company
While title companies often serve as trustees in practice, the role of trustee is defined by the deed of trust document, not by the title company. A title company is not the legal holder of title by default.
Why is this correct?
The trustee holds legal title in a deed of trust arrangement as a neutral third party, acting as security for the loan until the debt is satisfied. This separation of legal title (trustee) and equitable title (trustor/borrower) is fundamental to the deed of trust structure in California.
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