There would come a time that you will be needing a large amount of money and do not have any way of acquiring them. You could try to borrow some of them from your relatives and close friends but this option is not always possible. Another is getting a loan from financial institutions such as banks or any other lenders.
Doing so though would require you to provide something to secure the loan. This can be your real estate properties where you use trust deeds or letting a trustee hold the legal title for security of loan between lender and borrower. The latter, also called as trustor, have the equitable title and the former is also referred as beneficiary.
The trustee holds the title while allowing your ability to use the property remains for merchandising and sales purposes. This continues until you have paid back the debt or you defaulted which means you fail to pay your dues. The trustee would then be able to use their power of sale and have that property be auctioned.
The bidding price will start from the amount you loaned from the lender to assure they could get their money back. They would also add the charges made from whatever services they may have acquired including those charged by the trustee. The equitable title will then become terminated automatically by law operation with the sale.
They then grant both titles to the highest bidder and then the bidder records the deed and becomes the property owner. Advantages of this is that the lender is able to recover the collateral value faster for the loan and will not have any uncertainty and expenses in suing the borrower. This is because suing them is not needed anymore before doing this.
Private loans and banks use mortgages and trust deed to create liens in real estate and are both recorded as debt on where the location of that property is. Mortgages only involves two parties while the other one has three parties involved with the third being the trustee. They could be a bank, escrow company or a title company.
Judicial foreclosure happens in mortgages where lawsuits is filed by lenders to the borrowers when they defaulted on the mortgage. This process consumes a lot of time and the latter can sue the former for deficiency balance if they did not get enough money through the auction. However the property can still be acquired back within a set time using the right of redemption.
While trust deed lets lenders bypass court system and follows the outlined procedures from the state law and the deeds itself. In this case, the former owner has no right of redemption when they have sold the property already. When no bidder comes during the auction then it automatically reverts back to their lender.
So make sure when you are contemplating on choosing this option because when you defaulted, you will not get it back. So choose between them which is the better choice and decide which is the best option. But no need to worry if you can just pay your responsibilities.