Deed of Trust
Throughout the buying or refinancing a property in the state of Maryland you will run into many documents and terms that you may have heard of in passing but might not have a complete understanding. One of those things could be the Maryland Deed of Trust. A deed of trust is the security instrument that details the transaction between the lender and the borrowers. The deed of trust is recorded at the Maryland county land records office, and your lender will keep the original signed deed of trust from closing. When the loan is repaid or satisfied, the lender will then return the deed of trust with the satisfied promissory note.
The Maryland deed of trust is broken down into sections A- Q, and then1 -25. The deed of trust is a rather lengthy document usually 15 pages with additional rider pages when applicable.
Section A –G is the basic information of the borrower(s), lender and trustee. These sections also identifies the terms of the note (i.e.: loan amount, date of promissory note, and date of loan payoff).
Section H – Will have any additional riders that are carried on the property some of the riders that can be attached to the deed of trust are as follows:
- Adjustable rate rider – will explain the terms of the conditions of an adjustable mortgage, such as date of adjustment, which index the adjustable rate is based on, and if there is pre-payment penalty.
- Balloon Rider – A balloon rider is a legal clause attached to a deed of contact which makes the entire unpaid balance of the mortgage, and any unpaid interest, due at the maturity of the balloon.
- 1-4 Family rider – A 1-4 Family Rider means that the property is a multi-unit property, more than 1 unit, such as a duplex, tri-plex, or four-plex. It can be written as 2 – 4 Unit Family Rider, or 1-4 Family Rider.
- Condominium Rider – A rider that is put on the deed when the building has individual units that are owned by individuals and common parts of the property, such as building structure, are owned jointly by the unit owners.
- Planned unit Development rider – planned unit development (PUD) rider on the deed of trust mean that you will have to pay dues to a future Home owners association when the HOA is developed.
- Biweekly Payment Rider– a Bi-Weekly Payment rider states the frequency of the mortgage payment. The repayment schedule is set up to have the borrower to pay half of their payments every two weeks. By using this method of payment, the borrower will make one additional payment a year. This extra payment reduces the principal balance of the borrower’s loan and accelerates the payoff of their mortgage.
- Second Home Rider – A second home rider is placed on a deed of trust that has had a loan that has been qualified as a second home not as a primary residence or investment property.
- Other(s) [specify] – if there is any other riders that are attached to the Deed of Trust
Section I – Applicable Law – simply means that the transaction cannot break any laws that are governing federal, state, and local statutes that have been put in place.
Section J – “Community Association Dues, Fees, and Assessments – this section is address that there could be dues or fees associated with the property that the borrower is purchasing, if there are fees or dues imposed they are the responsibility of the borrower and must be paid.
Section K – Electronic Funds Transfer – means you can pay your mortgage by other means than a bank check you can you call in your payment, go online, or set up automatic withdraw.
Section L – Escrow Items – Escrows are many times collected by the lender in order to pay the homeowners insurance and property taxes when they come due for the borrower.
Section M – Miscellaneous Proceeds – This is when you are awarded money from a third party for existing amount on the mortgage, in cases of damage to the property such as fire.
Section N – Mortgage Insurance – is on conventional loans over 80% loan to value and all FHA mortgages, mortgage insurance pays the lender in the event of a borrower defaulting on a there mortgage.
Section O – Periodic Payment – describes the frequency of the mortgage payment, monthly with principle, interest and escrow.
Section P – RESPA – stands for the Real Estate Settlement Procedures Act, this act is to protect the borrowers in the transaction it is one of the governing forces that all lenders, bankers and brokers must follow.
Section Q – Successor in Interest of Borrower – means that the borrower or any party that has title in the property is now responsible for and liable for the debt service that accompanies the loan.
Transfer of Rights in the Property – this sections is explaining how the borrower is transferring their rights to the property through the Maryland deed of trust to the trustee, it also contains the terms and conditions of the loan explained with the uniformed covenant and the non-uniformed convents.
Uniform Covenants – is the written contact that all parties to the transaction agree to.
- Payment of Principal, Interest, Escrow Items, Prepayment charges, and Late Charges – this section is just explaining that the borrower must make its scheduled payment on or before the due date; otherwise they will be subject to late fees and possible foreclosure.
- Application of Payments or Proceeds – this section explains how the payment is divided between interest, principal and the escrows.
- Funds for Escrow items – This covenant discloses that if your taxes and insurance are not escrowed then it is the responsibility of the borrower to pay them when they come due. It is also the responsibility to inform the lender when/if there are any increases or decreases in the monthly amounts.
- Charges; Liens – States it is the responsibility of the borrower to pay any and all charges or liens that could potential take first position as a lien holder on the property, things such as property taxes.
- Property Insurance – This covenant state the that the borrower must at all times be carrying proper homeowners insurance on the property. If the borrowers cancels or stops making payments of the insurance the lender has the right to obtain insurance on the property, this insurance potentially will not cover the borrower personal belongings.
- Occupancy – simply states that the borrower is going to occupy the property in accordance with the loan documents.
- Preservation, Maintenance and protection of Property; Inspections – this covenant means that you will destroy the property and do proper upkeep on the property.
- Borrower’s Loan Application – this section states that if you misrepresent yourself on the loan application with the lender that they will consider that you are in default of the terms and conditions of the loan.
- Protection of Lender’s Interest in the Property and Rights under this security Instrument – this covenant states that the borrower must comply with all covenants in this agreement and if they do not the lender has the right to take legal action against the borrower.
- Mortgage Insurance – If mortgage insurance is required on the loan then the borrower must pay the mortgage insurance until the mortgage insurance is not longer required.
- Assignment of Miscellaneous Proceeds; Forfeiture – states how the miscellaneous proceeds are distributed. First the money goes to the lender for repairs to the property, second the money goes towards the principle of the mortgage and then if any proceeds are remaining they are giving to the borrower.
- Borrower Not Released; Forbearance By Lender Not a Waiver – If the lender decides to come to agreement with the borrower about the terms and conditions of the loan, meaning to give extra time for borrower to pay mortgage, it does not change the original terms of the Note
- Joint and Several Liability; co-signers; successors and assigns Bound – If a co-signer only signs the security instrument and not the note they are not personally obligated to pay the sums secured by the security instrument.
- Loan Charges – If the borrower defaults on the mortgage and the home goes to foreclosure the lender has the right to charge the borrower for any of the charges that the lender had to pay, up to the legal limit that the state allows.
- Notices – All notices whether giving by the lender or the borrower must be in writing through the deed of trust.
- Governing Law; Severability; Rules of Construction – The deed of trust shall be governed by federal laws, and the laws of that state in which the real estate is located.
- Borrowers copy – The borrower will receive a copy of the note and deed of trust at settlement
- Transfer of Property or a Beneficial Interest in Borrower – The borrower cannot transfer the ownership in the property without written permission from the lender. If the borrower does transfer ownership in the property without approval from the lender then the lender has the right to call the entire note.
- Borrower’s Right to Reinstate after Acceleration – This section explains what the borrower needs to do if the property has gone into foreclosure proceedings.
- Sale of Note; Change of Loan Servicer; Notice of Grievance – the lender must give written notice to the borrower 30 days before sale of note to a new servicing company, of where to send your payments. With the sale the terms and conditions of the loan cannot change.
- Hazardous Substances – no hazardous substances can be stored on your property, if there are hazardous substances stored on the property it is the responsibility of the borrower to cure.
- Acceleration; Remedies – this covenant explains the process that the lender must follow in order to accelerate the payoff of the mortgage for breach of contract.
- Release – once the mortgage note is paid off the security instrument is satisfied and the house is officially the borrowers with no encumbrances.
- Substitute Trustee– The lender has the right under the deed of trust to transfer the trustee duties to a different party, which has not direct effect on the borrower.
- Possession of the Property – Borrower has property until the lender issues a notice of default.