A three-party security instrument where a trustee holds title on behalf of the lender until the loan is repaid.
Why Deed of Trust matters on the exam
This term belongs to Financing. The questions below are real items from Freehold's bank that use it - each one cites its source.
Exam questions using Deed of Trust
Every Freehold question shows why the right answer is right — and cites its source.
In a real estate loan transaction, the promissory note serves as:
The borrower's personal promise and evidence of the debt
The document that pledges the property as collateral
The instrument that transfers title to the lender
The insurance policy protecting the lender from default
Show answer & explanation
The borrower's personal promise and evidence of the debt — The promissory note is the borrower's written promise to repay the debt on stated terms, making it the evidence of the debt itself. The mortgage or deed of trust separately pledges the property as security.
The borrower — The borrower gives the mortgage pledging the property as security, so the borrower is the mortgagor. The lender receives the mortgage and is the mortgagee — the '-or' gives, the '-ee' receives.
Source: PSI National Real Estate Exam Content Outline §4 Financing
A promissory note is best classified as a negotiable instrument because it:
Must be recorded with the county before it becomes a legally valid instrument
Creates a lien against the real property described in the accompanying security instrument
Can be freely transferred or endorsed to another party who may then enforce payment
Requires the signatures of at least two witnesses before it becomes enforceable in court
Show answer & explanation
Can be freely transferred or endorsed to another party who may then enforce payment — Negotiability means the note can be transferred by endorsement or delivery, allowing a holder in due course to collect payment; the mortgage or deed of trust, not the note, creates the lien.
Source: PSI National Real Estate Exam Content Outline §4 Financing
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