While all 50 states have laws letting people borrow money to buy property, different states handle the legalities in different ways. In Colorado, the most common way to handle the situation and ensure the lender can recover if the borrower stops paying is through a deed of trust. It lets a county official, called the public trustee, hold the title to the real estate for the lender until the loan is paid off or the borrower defaults. The deed must meet certain standards to be valid. Colorado is the only state that has the public trustee system.
In the state of Colorado, a deed of trust must include the lender's name, the borrower's name, a description of the property, and the specific details regarding the loan used. The deed of trust is accompanied by a notarized promissory note.
Deeds of Trust and Mortgages
In certain states, a mortgage agreement is the most common way to handle the situation in which someone borrows money to buy a home or other property. It has only two parties: the borrower and the lender. The exact details vary by state law and other circumstances, but in general, the agreement specifies how the lender can take possession of the property if the borrower stops paying.
Mortgages exist in Colorado, but more common are deeds of trust. These involve three parties: the borrower, the lender and the public trustee. The deed specifies that the borrower grants the land title to the trustee to hold in trust for the lender. If the loan is paid off, the lender formally releases the deed of trust, and the title returns to the borrower.
Otherwise, if the borrower defaults, the trustee can sell the property in a foreclosure sale to pay the debt. The trustee's offices also provide guidance to people whose properties are in foreclosure on how the process works, but they are unable to give legal advice.
Deed of Trust Requirements
Colorado real estate agents generally are required to use state-approved forms for real estate transactions, including for deeds of trust.
The form requires information such as the lender's name and borrower's name, the legal description and address of the property in question, and information on the terms of the loan. The form is accompanied by a promissory note, in which the borrower promises to repay the loan according to its stated terms. The form typically needs to be notarized.
Under the standard deed of trust form, the borrower also is required to keep the property insured with an insurance carrier approved by the lender, keep it in good repair and pay whatever property taxes apply. Generally, the borrower pays into an escrow account managed by the lender that's used to pay taxes and insurance, so that the lender can know these expenses are covered and the property won't be endangered by failure to pay.
- Real Estate Lawyers: Colorado Property Deeds
- El Paso County Public Trustee: General Information
- United States Foreclosure Laws: Colorado Foreclosure Law Summary
- Assured Title Agency: Understanding a Deed of Trust
- Bull Forms Colorado: Trust Deeds and Liens
- Colorado: Division of Real Estate Contracts and Forms
- Colorado: Deed of Trust
- American Bar Association. "Commercial Real Estate FAQs: What Is the Difference Between a Mortgage and a Deed of Trust?" Accessed July 31, 2020.
- Cornell Law School. "Deed of Trust." Accessed April 6, 2020.
- Consumer Financial Protection Bureau. "Deed of Trust." Accessed July 5, 2020.
- American Bar Association. "Glossary of Real Estate Terms: Deed of Trust." Accessed July 31, 2020.
- Consumer Financial Protection Bureau. "How Does Foreclosure Work?" Accessed July 5, 2020.
- American Bar Association. "Mortgage Note -- Deed of Trust Note." Accessed July 31, 2020.
Steven Melendez is an independent journalist with a background in technology and business. He has written for a variety of business publications including Fast Company, the Wall Street Journal, Innovation Leader and Ad Age. He was awarded the Knight Foundation scholarship to Northwestern University's Medill School of Journalism.