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Deed of Trust

A deed of trust is a common method of financing real estate purchases in many states in the United States. In this article, we’ll define the term “deed of trust.”

Key Takeaways

  • A deed of trust is a legal document securing a real estate loan by transferring the title of the property to a trustee until the loan is paid off
  • If the borrower defaults on the loan, the trustee can sell the property and use the proceeds to pay off the outstanding balance
  • Unlike mortgages, which only involve two parties, deeds of trust involve three parties
  • Deeds of trust allow for a quicker, less expensive foreclosure process than mortgages
  • Requirements for deeds of trust may vary from state to state

What Is a Deed of Trust?

A deed of trust is a legal document that is used to secure a real estate loan by transferring the title of the property to a trustee until the loan is fully paid off. 

A deed of trust is a three-party agreement between the borrower (also called the trustor), the lender (also called the beneficiary), and a third-party trustee. The borrower, who owns the property, transfers the title to the trustee, who holds it as security for the loan. If the borrower defaults on the loan, the trustee can sell the property and use the proceeds to pay off the outstanding balance on the loan.

Deed of Trust vs. Mortgage

A deed of trust and a mortgage are both methods of financing real estate purchases, but they have some significant differences.

A deed of trust is different from a mortgage in that it involves a third-party trustee, whereas a mortgage involves only two parties – the borrower and the lender. In a mortgage, the borrower retains the title to the property, but the lender has a lien on it until the loan is fully paid off.

One of the main advantages of a deed of trust is that it allows for a quicker and less expensive foreclosure process than a mortgage. This is because the trustee can sell the property without having to go through a court process, whereas a mortgage requires a judicial foreclosure process.

Another difference between a deed of trust and a mortgage is the role of the trustee. In a deed of trust, the trustee holds the legal title to the property until the loan is fully paid off, whereas in a mortgage, the borrower retains the legal title. The trustee is responsible for selling the property if the borrower defaults on the loan, and then distributing the proceeds to the lender.

In addition, the requirements for a deed of trust and a mortgage may vary by state. In some states, only a deed of trust is used, while in others, only a mortgage is used. Some states allow for both methods to be used, but they may have different legal requirements. 

For advice on understanding whether or not a deed of trust is appropriate for your real estate transaction, it is recommended to consult with an experienced real estate lawyer.

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