Can a Lawyer Serve as Trustee in a Deed of Trust?
Full Question:
Answer:
It is not unusual for a lawyer to be named as trustee in a deed of trust, but it is possible your grandmother could name a successor trustee. In a deed of trust, a trustee, such as the lender, holds the property in the trustee's name until the loan is repaid. If the loan goes into default, the trustee may sell the property. This power of sale does not come with a standard warranty deed. The provisions of any deed of trust or mortgage on real property may authorize any beneficiary, trustee, mortgagee, or his or her agent or successor in interest, to exercise any power of sale or other remedy contained therein upon the failure of the trustor or mortgagor to pay, at the times provided for under the terms of the deed of trust or mortgage, any taxes, rents, assessments, or insurance premiums with respect to the property or the loan. I suggest reading the terms of the deed of trust carefully to determine your rights and obligations regarding sale of the property. If you are authorized to sell the property, you may file the notice of sale without the assistance of an attorney or appoint an agent to do so.
In many jurisdictions, a deed of trust is required in order to conduct a foreclosure by the power of sale. A deed of trust conveys the property from the mortgage holder to the trustee, who holds the property in trust for the mortgage holder. In the instance of foreclosure, the trustee, not the mortgage holder, conducts the sale of the mortgaged property. The trustee is generally instructed by the mortgage holder to foreclose on the mortgage and is under no obligation to determine whether this foreclosure is justified. A deed of trust and trustee supervised foreclosure allows the mortgage holder to bid for the foreclosed property, provided the trustee and the mortgage holder are not closely associated. Otherwise, a mortgage holder cannot bid for the mortgaged property when the foreclosure is by power of sale. A deed of trust is similar to a mortgage, with one important exception. If the borrower breaches the agreement to pay off the loan, the foreclosure process is typically much quicker and less complicated than the formal mortgage foreclosure process. While a mortgage involves a relationship between the borrower/homeowner and the bank/lender, a deed of trust involves the homeowner, the lender, and a title insurance company. The title insurance company holds legal title to the real estate until the loan is paid in full, at which time the title company transfers the property title to the homeowner.
Trustees are considered fiduciaries and must act in the best interest of the beneficiaries. Various remedies may be available if a fiduciary duty was breached. Common actions for an abuse of a fiduciary duty, among others, include a petition for an accounting, claim of breach of fiduciary duty, theft, conversion, or a fraud charge. In a corporation, an officer owes to the members of the company the duty of care, loyalty, and disclosure, and the members may owe a similar duty to the manager. Each party is expected to always act in the best interest of the company as a whole and avoid any potential conflicts of interest with the company.
It will be a matter of subjective determination for the court to determine whether there was a breach of fiduciary duty, based on all the facts and circumstances involved. Some of the factors that may be considered include, among others, whether the fiduciary personally benefitted at the expense of the corporation, or failed to disclose information to the corporation’s detriment. For example, were funds diverted to personal use? Was there knowledge of financial misdealings or risk factors that weren't disclosed by the fiduciary? In applying the statutory standards for the duty of care owed by a managing member of a corporation, the court will need to determine whether there was gross negligence, reckless conduct, intentional misconduct, or a knowing violation of law. The standards of care are measured against the subjective interpretation of how a "reasonable" person would act in similar circumstances.
The elements of a cause of action for breach of fiduciary duty are:
(1) Plaintiff and Defendant share a relationship whereby:
(a) Plaintiff reposes trust and confidence in Defendant, and
(b) Defendant undertakes such trust and assumes a duty to advise, counsel and/or
protect Plaintiff;
(2) Defendant breaches its duties to Plaintiff; and
(3) Plaintiff suffers damages.
The elements of a claim for breach of fiduciary duty are not fixed as the claim may arise from virtually any case where one party accepts the trust and assumes the duty to protect a weaker party.
Affirmative defenses to a claim for breach of fiduciary duty can include, but are not limited to:
(1) The passing of the statute of limitations for filing the claim.
(2) Lack of fiduciary relationship (for example, when the parties did not enter a fiduciary relationship, but rather conducted business in an arm’s length transaction there is no duty to protect the other party or disclose facts which the other party could have discovered by its own diligence.)
(3) Lack of standing
(4) Approval (for example, if the alleged actions followed full disclosure to and the consent of the Plaintiff)
(5) Business judgment rule (ex. that the corporate fiduciary's actions were motivated by a bona fide interest in the well being of the corporation where shareholders are the ones owed the fiduciary duty)
