Legal Question in Real Estate Law in California

Re: Trust vs lien

The most usual way to secure a loan with real property as collateral is for the borrower to give the lender a promissory note secured by a deed of trust, where the deed of trust names a so-called "trustee." Although the terms "trust" and "trustee" crop up in the terminology used, there is no real trust created nor is the role of the person or institution selected as "trustee" a true trustee. Indeed, the trustee as no real role except to step in and do a trustee's sale if a foreclosure were to become necessary, and to reconvey (give back) the collateral to the borrower when the loan is fully repaid.

What you friend and his lawyer are proposing is, as far as I can tell, entirely fair, proper and usual.

The title company serves two or three possibly-useful roles here. First, they have boilerplate loan documents in their word processers, and can quickly and accurately document your loan and the lien. Second, their name can be inserted in the deed of trust as the "trustee" - but remember this is not a true trust nor does the title company become a true trustee. At most, it becomes a minor functionary to carry out reconveyance or, if necessary, foreclosure. Third, the lender may want to get a title report and/or title insurance from them, to assure himself that you actually own the property being put up as collateral.

So, I'd say the arrangement is a lien, and it is the customary way to create this kind of lien, and the words "trust" "trustee" and "deed of trust" that crop up in the deal terminology are not so much describing a true trust as they are talking about a very common way to secure loans with real property. (The only other way in common use is a mortgage, and true mortgages are not widely used in California).

Re: Trust vs lien

If he is proposing a Trust Deed securing a Promissory Note for the amount, that is a normal way of doing things. If you really want to have an attorney review and discuss the issues, feel free to contact me.