In Texas, a deed of trust, also known as a trust deed, is the commonly used instrument for the purpose of creating mortgage liens on real estate.

A mortgage is an executed contract in which the legal or equitable owner of the real property pledges the title thereto as security for performance of an obligation. This obligation is ordinarily a debt and is evidenced most often by a promissory note. A deed of trust is the most commonly used mortgage instrument in Texas for both residential and commercial transactions.

A mortgage has also been described as a grant of fee on condition of the payment of a debt.

The term "mortgagor" refers to one who owns an interest in real estate and who executes a mortgage on that interest as security for a loan or for advance of credit; that is, the borrower or debtor in the transaction.

The term "mortgagee" refers to the lender, or the party being secured in the transaction.

The term "trustee" refers to the grantee or second party in a deed of trust, which party is theoretically the party holding title to the land of the mortgagor for the benefit of the mortgagee beneficiary.

In Texas, any agreement (whether a deed of trust or trust deed) creating a security interest in real property as an incident of a debt constitutes a mortgage.

The existence of both a mortgagor and a mortgagee is essential to a mortgage.

The owner of property cannot execute a mortgage to oneself either directly or in some representative capacity.

The distinction between a mortgage and a deed of trust is that a mortgage is a grant from a mortgagor to a mortgagee, while the deed of trust involves a third party, the trustee, who takes the mortgage grant and holds it in trust for the mortgagee (the beneficiary).

Unless the loan goes into default, the trustee is not involved with the property.

Deeds of trust contain a power of sale in the trustee to be exercised after a default at the request of the lender-noteholder.

A deed of trust is a comprehensive and complicated instrument which usually describe among other things:

• The duties and responsibilities of the trustee;
• The transfer of the title to the mortgaged property to the trustee, subject to a defeasance clause;
• The details of the mortgaged property;
• The covenants of the mortgagor to pay the principal and interest on the bonds and to maintain the mortgaged property in good condition;
• The procedure in the case of default; and
• The procedure to appoint a successor trustee.

A promissory note is a negotiable instrument evidencing the borrower's promise to pay the underlying debt. The deed of trust creates a lien against realty being pledged as collateral to help ensure the repayment of the debt.

Under Texas homestead laws, care must be taken to determine that deeds between family members are truly conveyances and not prohibited mortgages in contravention of the Texas Constitution (Art: 16, Section 50a).  Sales between family members, other than owelty of partition should be approved by a Texas underwriter.

See also Texas Bulletin TX2012003.

Capacity

The trustee must have the legal capacity to take hold and transfer property.

If the trustee is a corporation, it must have the power to act as a trustee in Texas.

Nature of the Title Acquired by the Trustee

The title acquired by the trustee is dependent upon the lien theory of mortgage law which provides that the mortgagee's interest is a security and that the mortgagee does not hold any title to the property until a valid foreclosure occurs.

Duties

The trustee in a deed of trust owes duties both to the borrower (mortgagor) and the holder of the debt. The duties of the trustee are determined and measured by the terms of the deed of trust in conjunction with Chapter 51, Texas Property Code.

The main function of a trustee in a deed of trust is to sell the property at public auction:

• If default on the payments has occurred, and
  
  
• If instructed by the mortgagee, beneficiary, or noteholder to foreclose.

It is the policy of the Company that neither Stewart Title Guaranty Company nor Stewart Title Company be named as a trustee in a deed of trust.  See Bulletin Tx2009006. 

A deed of trust can be satisfied by the proper execution and recording of a release.

The release is an instrument executed by the original mortgagee, assignee, beneficiary, or actual holder of the note, after the outstanding debt has been paid in full, releasing the property from the lien of the deed of trust.

When a deed of trust lien is refinanced, the doctrine of equitable subrogation provides that a release or assignment works equally well.

For a number of years, obtaining reliable pay off statements from some lenders was quite difficult because of the lender refusing to honor such statements and demanding additional principal or interest even though the title company had in good faith paid and relied on such payoff statements.  Accordingly, the 2011 Texas legislature enacted Section 343.106, Finance Code providing that such statements are final unless the lender makes corrections prior to the closing.