Security Instruments

What are the differences between a mortgage, a trust deed, and a security deed?

1. Who holds title to the property during the loan 2. Number of parties involved 3. Ease and expense of foreclosure

A state's "theory" has a direct bearing on the security instrument used. How is that?

1. in lien theory states, the security instrument of choice is usually a mortgage that allows the borrower to hold title to the property while the lender places a lien on the property that is either removed once the loan is repaid or is used to foreclose in the event of default 2. title theory states rely primarily on a trust deed (a.k.a. deed of trust) security instrument, which conveys the title to a third-party trustee to hold on behalf of the lender (beneficiary). If the loan is repaid, the lender instructs the trustee to convey the title back to the borrower.

Every security deed in Georgia will include provisions containing what declarations?

1. that this instrument secures the specific loan 2. that, in the event of default, the lender is authorized to sell the property via nonjudicial foreclosure process that conforms to state regulations 3. that the lender will cancel the deed upon salinification of the loan

The two "theories" that most states fall under are: A. lien theory and title theory b. lien theory and mortgage theory c. title theory and mortgage theory d. title theory and deed theory

A

T/F - a mortgage is a specific type of security instrument wherein the borrower retains title to the property during the life of the loan.

T

As you now know, Georgia is a title theory state. And, as such, it favors its own, unique, "title theory friendly" security instrument, the security deed, over that of a mortgage. (Mortgages are legal in Georgia, but are not often used. In fact, trust deeds, while legal, are fairly rare, too.) Why wouldn't Georgia just use a trust deed like most title theory states?

There is no third party involved in a security deed

What are the similarities between a mortgage, a trust deed, and a security deed?

They all include - 1. A pledge of the property to secure the promissory note 2. Provisions or remedies for default of the loan by the borrower (more on this to come!) 3. The opportunity to record the lender's interest in the property

These are states that convey the title to the lender or, more commonly, to a third-party trustee (operating on behalf of the lender) for the life of the loan

Title theory states

When a title is held by a third party trustee, it is said to be a naked title. What does this mean?

a colorful way of saying that the trustee is given the bare essentials of rights needed to carry out the terms of the trust

When a mortgage is used to secure a note and the note is paid in full, what happens?

a mortgage salinification is issued and recorded to clear the title of the lien

Which of the following is NOT one of the provisions you'll find in a Georgia security deed? A. in the event of default, the lender is authorized to sell the property via a nonjudicial foreclosure process B. the instrument secures the specific loan C. the lender has to file with the court prior to initiating a foreclosure action to sell the property D. the lender will cancel the deed upon salinification of the loan

c- Every security deed in Georgia will include provisions containing the following three declarations: 1. This instrument secures the specific loan. 2. In the event of default, the lender is authorized to sell the property via a nonjudicial foreclosure process that conforms to state regulations. 3. The lender will cancel the deed upon satisfaction of the loan.

What is one of the larger factors for lenders in determining the risk of a loan request? A. the intended use of the property purchased with the loan b. the level of educaiton of the applicant c. the martial status of the applicant d. whether or not the loan will be secured by collateral

d The lender has to evaluate the risk associated with each request for a loan and set their interest rates accordingly. And one of the larger factors in risk determination is whether or not the loan will be secured by collateral, which, for real estate, is the property itself. Next Page

states that employ security instruments allowing the borrower to retain title while the lender places a lien on the property to secure the loan

lien theory states

T/F - Georgia is a title theory state, but the predominantly used security instrument is NOT a trust deed but rather a security deed

t

T/F- Because the title to the property rests with the trustee, rather than with the borrower, foreclosure procedures are usually less complicated and less costly

t

There are two parties involved in the loan agreement in a lien theory state. Who are these two parties?

the borrower (mortgagor) and the lender (mortgee)

There are three parties involved in the loan agreement of a title theory state. Who are these parties?

the borrower (trustor), the lender (beneficiary), and the trustee (who holds the title on behalf of the lender)

When a deed of trust is used and the note is paid in full, what happens?

the lender authorizes the trustee to execute what is known as a deed of reconveyance or deed of release. As with all security instruments, this needs to be recorded to clear title

When a security deed is used and the note is paid in full, what happens?

the lender executes a reconveyance or deed of release. This will need to be recorded to clear title

Because a mortgage is a specific type of security instrument wherein the borrower retains title to the property during the life of the loan, how does the lender retain interest?

the lender's interest is protected by the placement of the mortgage lien, which is an encumbrance that remains on the title until the loan is paid off

With a security deed, while legal title is conveyed to the lender, and the borrower enjoys the typical rights of ownership. The title is conveyed to the lender, however, the title is a defeasible title. What does this mean?

this means that title can be defeated by the borrower when the loan is paid in full - which will result in the title being conveyed to the borrower at that time.