Legal Question in Real Estate Law in California

Re: Who should be TRUSTEE on DEED OF TRUST

A beneficiary (lender) is not prohibited from also serving as trustee under the deed of trust it holds (More v. Calkins (1892) 95 Cal. 435), or having one of its employees do so (Witter v. Bank of Milpitas (1928) 204 Cal. 570).

This is not considered good practice, however, because there is indeed a conflict of interest. The effect of the conflict is more likely to bite the lender/trustee than the borrower, however.

As a practical matter, changing trustees is easy for the lender, and if a foreclosure situation were to arise, the lender would probably cause the substitution of a less closely connected third party as trustee to carry out the sale.

The "trust" that arises under a deed of trust is not a true trust, nor is the trustee a true trustee as recognized under the law of trusts. The deed of trust trustee's role is limited and ministerial and mechanical. All this 'trustee' does is reconvey when the debt is paid, or conduct a nonjudicial foreclosure sale at the beneficiary's request when a default occurs. Both roles are narrowly defined by contract and law and the trustee exercises little if any discretion in carrying out its role.

So, possibly you have a lender that is a little on the flaky side because they do things this way, but the risk is more theirs than yours. If you have anything to worry about, most likely it is whether your loan is a good deal for you, or whether this flaky outfit has subtly ripped you off with some other aspect of the loan terms.