Certified Residential Appraiser Practice Exam

What happens if a borrower defaults on a deed of trust?

1. The property goes to the state

2. The lender may take title to the property

3. The property is sold at auction

4. The title remains with the borrower

The correct answer is: The lender may take title to the property

When a borrower defaults on a deed of trust, the lender has specific rights to secure repayment of the loan. In this scenario, the lender may take title to the property as part of the foreclosure process. A deed of trust serves as a security instrument, and upon default, it allows the lender to initiate foreclosure to retrieve the loan amount by taking ownership of the property. If the borrower fails to make payments or violates other terms outlined in the deed of trust, the lender can enforce its rights. This often involves initiating proceedings that may ultimately lead to the lender taking legal title to the property, either to hold it as an asset or to sell it in order to recover the amounts owed. The other options do not accurately reflect the legal consequences of defaulting on a deed of trust. While foreclosure processes can involve an auction or public sale, those steps are typically means to execute the lender’s right to take back the property, reinforcing the correctness of the lender potentially taking title directly after the foreclosure.