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A trust deed sale is a type of foreclosure that is unsupervised by the judicial system. The sale of the property is handled by a trustee, who is given power of sale by the mortgage lender. The trustee is considered to be an impartial third party. Trust deed sales usually occur approximately four months after a notice of default is recorded.
A few local jurisdictions use a trust deed in place of a traditional mortgage. Trust deeds are an agreement between a borrower, a lender and a trustee. When borrowers receive money from lenders to purchase a home, they give the property's legal title to an impartial trustee. To protect the lender's interest, the title is held by the trustee, who is named as the beneficiary.
The borrower will retain the property and the legal rights to its title if the debt is paid in a timely manner. Should the borrower default, the trustee may sell the property in a trust deed sale. Similar to a judicial foreclosure, the proceeds from the sale are first paid to the lender to satisfy the outstanding debt, with the borrower receiving any excess funds.
A trust deed sale is not supervised or registered with a court. The trustee records a notice of default in the county or municipality where the property is located. The borrower has 90 days to respond and satisfy the outstanding debt. If the debt is paid by the borrower, the trustee is not able to proceed with the sale.
After 90 days, a trust deed sale is scheduled. The sale usually occurs in the county or municipality where the notice of default was filed. Even though the courts do not confirm trust deed foreclosures, they are conducted in a public setting. The trustee needs to post the property at least 20 days before the sale.
In addition to posting notice that the property is in foreclosure, the trustee also needs to publish notice of the upcoming trust deed sale in the newspaper 30 days prior. In order to meet minimum requirements, the notice of sale needs to be posted in the newspaper at least once a week for three consecutive weeks.
During the sale, the property is sold in an auction style format. Due to the absence of judicial approval, there is a risk of future litigation over the property's title. If at any time during the foreclosure proceedings the borrower files for bankruptcy, the trust deed sale is not allowed to proceed.