what is a Trust Deed or Deed of trust is a set of documents that are presented when a lender lends some amount of money to the owner for purchasing a property.
Moreover, it is represented as an agreement between the two to keep the property with a third party until and unless the debt is paid by the borrower. Moreover, the entire property will be managed by the third party until the loan is successfully cleared.
Sounds confusing right? To clear your confusion, we will be discussing the entire concept of the trust deed in detail for clear insight.
How Does the Deed of Trust Works?
Now that you got a fairer idea regarding the trust deed, let’s see how it actually works. Let’s take an example of real estate. Suppose a lender (Beneficiary) lent a certain sum of money to the borrower (Trustor) to purchase a home. Then, the home for which the borrower took the money from the lender will actually be handled by a third party (Trustee) until he repays the loan.
A trustee is the one who has been given the full authority to perceive the property until the specified loan is repaid by the borrower. The agreement is then sealed with a promissory note which is considered as a security for debt payment.
Throughout the entire time, the equitable title remains with the borrower and the legal title belongs to the trustee. The legality is then passed to the borrower once the loan gets successfully cleared. However, at any point, the borrower is unable to pay the debts, the trustee will take the authority of the property.
VAs, also known as Individual Voluntary Arrangements are the English, Welsh and Northern Irish equivalent of Trust Deeds in Scotland but an IVA is not exactly the same as a Trust Deed.
The length of the process is the main difference, with a Trust Deed typically lasting 4 years and an IVA lasting 5 years. Sometimes you may read about a Scottish IVA, but this is a term generally used to describe a Trust Deed.
Another difference is the amount of debt that can be included with a Trust Deed, you would typically have £5,000 of unsecured IVA debt, and with an IVA, you can apply for an IVA with £6,000 of unsecured debt.
While an IVA may not technically be the same as a Trust Deed, there are other similarities and differences between IVAs and Trust Deeds. There are other solutions in Scotland that vary from the rest of the UK solutions including:
Advantages of the Trust Deeds
Trust deeds have numerous advantages associated with it. To be exact, here we have mentioned some of them for you:
- First of all, trust deed debts are written off if you surpass the term of its payment. This will then further help you to know the deadline for your dept payment and when it will end.
- If your lenders keep calling or contacting you for your debts then they would stop as soon as you sign a trust deed. This is because they are not allowed to disturb you after that and you will be legally protected. Additionally, you can also stay safe from any wage arrestment trust deed
- There will be no charges or interest if once your trust deeds get started. Thus, you can stay away from that as well.
- With a valid Trust deed, HMRC will include tax or vats as well. If you are an entrepreneur yourself, then trust deed is a useful way to stay away from debts.
Difference Between Trust Deed and Mortgage
People tend to confuse between both the deed of trust and mortgage for its resemblance. However, the primary difference between both is that the former involves only two parties i.e borrower and lender, while the latter consists of around three parties viz, lender, borrower, and trustee.
A mortgage note basically signifies that the borrower has to pay the entire amount of money to the lender for property and only then he or she will be liable to sell it. Basically, the mortgage is not secured by a trustee but a lien which states that the borrower is not allowed to sell the property till the loan gets fulfilled and lien gets removed.
Will Trust Deed Affect the Credit Rating?
One common question that remains in one’s mind is whether the trust deed will affect the credit rating of the particular person. The answer to the question is Yes. Trust deed will then affect the credit for sure.
This is because you are actually breaking the terms and conditions of the credit agreement and your entire trust deed history will be stated in the credit reference agency files. Now, that can input a negative mark when you will try to take any credit further.
Difference Between a Deed and Deed of Trust:
With all this information, do not get confused with the terms deed and deed of trust. That’s because both are different from each other.
While deed is the documents produced to present the legal title or ownership to a person, the Deed of trust, on the other hand, does not confer the same. Moreover, it presents a promissory note which states that if the person is unable to fulfill his payments, the property will be withdrawn.
Hopefully, we were able to clear the concept and confusion of what is Trust Deed and how does the trust deed or deed of trust actually work. Make sure to be absolutely confirmed and then sign for any deal.