Certified Residential Appraiser Practice Exam

What happens to the legal title in a Note of Trust Deed transaction?

1. The title remains with the seller until all payments are made

2. Legal title is transferred to the buyer immediately

3. The buyer receives a lease for the duration of the contract

4. The seller retains a mortgage on the property

The correct answer is: The title remains with the seller until all payments are made

In a Note of Trust Deed transaction, the legal title typically remains with the seller (or the lender, depending on the context) until all payments have been completed. This arrangement reflects the underlying purpose of the trust deed, which serves as a security instrument for the loan. The buyer gains equitable title, allowing them to occupy and use the property while making payments, but the legal title does not transfer to the buyer until the full repayment of the loan is fulfilled. This structure protects the lender’s interests by ensuring they retain legal claim to the property until the buyer has demonstrated their ability to complete the financial obligations set forth in the trust deed. The other options suggest different scenarios that do not accurately reflect the nature of trust deeds. For instance, immediate transfer of legal title to the buyer could expose the seller to greater risk if the buyer defaults before fully paying off the loan. Similarly, suggesting that the buyer receives a lease or that the seller simply retains a mortgage mischaracterizes the legal relationship defined by a trust deed, which not only secures the loan but expresses specific ownership and payment conditions.