California Real Estate Broker ExaminationFinancingEasy
A buyer is obtaining a loan to purchase a home. Which of the following loan documents creates a lien against the property and specifies the terms of repayment?
- AGrant Deed
- BTrust Deed
- CPromissory Note
- DPreliminary Change of Ownership Report
Show answer & explanationAnswer & explanation
Correct answer: B. Trust Deed
A Trust Deed (or Deed of Trust) is the document that pledges the property as security for the loan, creating a lien. The Promissory Note is the promise to repay, but the Trust Deed is what creates the security interest in the property.
Why the other options are wrong
- A. A Grant Deed transfers ownership of the property, it does not create a lien for a loan.
- C. A Promissory Note is the promise to repay the debt, but it does not create the lien on the property itself.
- D. A Preliminary Change of Ownership Report is filed with the county recorder to inform them of a change in ownership for tax purposes, it is not a loan document.
Trust Deed
A legal document that pledges real property as security for a loan, creating a lien. It involves a borrower (trustor), a lender (beneficiary), and a neutral third party (trustee).
- Creates a lien on the property
- Used in California instead of a mortgage
- Involves three parties: trustor, beneficiary, trustee
Memory trick: Note is the promise, Deed is the security.