A security interest is a property interest created by agreement or by operation of law over assets to secure the performance of an obligation. The obligation in question is usually the obligation to make payment on a debt. With respect to real property (as opposed to the other main type of property – personal property), there are four main security interests. Those security interests are: (i) mortgages, (ii) deeds of trust, (iii) installment land contracts, and (iv) sale-leasebacks. In this article, we’ll discuss each one of those security interests, with real world examples.

Next, we’ll discuss the mortgage, the first type of security interest in real property.

As previously mentioned, there are four main security interests in real property. The mortgage is probably the most well-known, and the most significant in the everday lives of people. A mortage is a transfer of an interest in real property to a lender as security for a debt. The most obvious example of a mortgage is when a debtor transfers his or her interest in a home to a lender, usually a bank, as security for getting the money to be able to purchase that same home. It is not uncommon to hear people talk about their mortgage payment, as most people cannot purchase their home without borrowing money from a bank to do so.

If the debtor defaults, or fails to make his or her monthly mortgage payment, the lender can assert his or her security interest in the real property by having a judicial foreclosure sale. A judicial foreclosure sale is usually conducted by the sheriff.

Next, we’ll look at deeds of trust.

A deed of trust is a document that reflects a specific financial interest in the title to a piece of real property. That specific financial interest is transferred to a trustee, who is a holder of property on behalf of a person who is entitled to the benefits of the trust (i.e. the beneficiary). The trustee then holds the deed of trust as security for a loan executed between two other people.

If the debtor defaults on his or her required payment, the lender can instruct the trustee, or the holder of the property, to foreclose the deed of trust by sale. This is different from mortgages, where the sheriff is required to conduct a judicial foreclosure sale. If the debtor fulfills his obligation and repays the loan, the obligation is released.

Next, let’s take a closer look at installment land contracts.

The third type of security interest in real property is the installment land contract. An installment land contract is an agreement between a buyer and a seller. Under this agreement, the buyer and seller agree on a specific price with respect to a piece of real property. Once that price has been agreed upon, the seller provides financing to the buyer to purchase the property. The reason why it is called an installment land contract is because the buyer is obligated to pay the debtor back in installment payments.

Under such an agreement, the buyer does not obtain legal title to the property until the full contract price has been paid to the seller who provided the financing. These agreements can have harsh consequences to buyers who fail to make their installment payments on a regular basis. In fact, if the buyer defaults on a payment, the seller can cancel the installment land contract, keep all of the money that the buyer already paid, and retake possession of the property. So, under an installment land contract, the seller can foreclose on the property. If you recall, with a mortgage, the sheriff is the only person who could conduct the foreclosure sale, and with a deed of trust, the trustee executed the foreclosure.

Next, let’s discuss sale-leasebacks.

The fourth main type of security interest in real property is the sale-leaseback. A sale-leaseback is an agreement whereby an owner of real property sells that property in its entirety to a new owner. Under this agreement, the new owner then leases that same property back to the previous owner on a long-term basis, at an agreed-upon rate. Accordingly, the previous owner no longer owns the property, but he or she now has the right to continue using it under the sale-leaseback.

An example of a sale-leaseback would be when a corporation sells its commercial property to a real estate investment trust. A real estate investment trust is a company that owns and operates income-producing real estate. A real estate investment trust is essentially a tax designation for corporations who invest in real estate to reduce their corporate income taxes. Here, a corporation could sell its own office space to a real estate investment trust, and then lease it back to continue using the space to operate its corporation.

Finally, let’s wrap this article up with a few key points.

In this article, we’ve discussed how a security interest is a property interest created by agreement or by operation of law over assets to secure the performance of an obligation. The obligation in question is usually the obligation to make payment on a debt. With respect to real property, we looked at four main security interests. Those security interests were: (i) mortgages, (ii) deeds of trust, (iii) installment land contracts, and (iv) sale-leasebacks. In this article, we’ve discussed each one of those security interests, and we’ve used some real world examples to flesh out some of the more complex concepts.