Question by PlasticTrees: How does a deed of trust work if there is a prior lein on a property?
I’m getting ready to meet with an attorney and the guy that wants to sell me a house. The atty said a deed of trust using the owner as a trustor is as safe as a mortgage. The owner just told me that there is a lein on the property, from where he refinanced to “fix it up”.
How will the lein affect things?
Best answer:
Answer by Beth K
You will not obtain clear title
What do you think? Answer below!
When you buy ANY real estate, you MUST get title insurance. NO EXCEPTIONS.
If you buy property with a lien on it, that lien will stay on the proprty unitl it is paid off. If you buy property with a lien on it, YOU are on the hook to pay off the lien.
NEVER EVER use the seller’s attorney when you buy real estate. Use your own attorney.
You don’t want to move forward with the existing lien on the property, becuase it can’t transfer ownership.
With a deed of trust, the seller transfers full ownership to you, but he/you record a deed of trust with the county and name a trustee (usually an independant third party, often a title company set up for this or an individual you both trust– even an attorney would work.) The deed of trust essentially becomes a lien– its evidence that you owe him money for the property.
If there is an existing lien on the house and its not paid off, the property cannot transfer. Even if it did, and you were paying $ 200K for a home that had a $ 30K lien, then you just paid $ 230K for the house because liens run with the land, not the landowner.
Basically in this case for it to work, you’d have to pay a down payment that would pay off the lien, and get a deed of trust for the remainder. That may mean that you need to go get a ‘first mortgage” that would be enough to pay off the lien (and maybe give the seller a little pocket cash) and then have the seller do a ‘carry back” for the second portion.
I just did a similar thing for my house– i bought it from my grandmother, and she liked the idea of having an income from the deed of trust. However, she had a $ 20K home equity line of credit. I got a first mortgage for about 50% of the sales price and she got a nice chunk of cash to put in the bank (and pay off her loan) and then we did a deed of trust for the other portion.
The only risk in this scenario is for the SELLER– they are in second position in case of foreclosure, and only collect what is owed to them after the first loan is paid in full.