Deed of Trust

What is a deed of trust?

A deed of trust is commonly used in real property transactions and is important for homebuyers, real estate investors, and lenders. It involves three parties:

• The lender is the institution providing the loan. The lender gives the borrower money.
• The borrower is the person buying the property. The borrower pays the lender.
• The trustee is a neutral third party, usually an escrow company or title company, that holds legal title until the loan is paid.

 You might come across a trust deed when buying a home, refinancing, or using property as loan collateral. Once the loan is fully paid, the trustee transfers the property’s legal title to you.

A deed of trust usually includes the following details: 

• Description of the property
• Names of all parties involved
• Inception and maturity date of the loan
• Original loan amount
• Fees, which may include trustee fees, recording fees, and other loan-related charges
• Riders, which are extra terms that change parts of the agreement
• What happens in case of default, like foreclosure proceedings

Related terms

 To fully understand what a deed of trust is, you also need to be familiar with a few related terms.

• Promissory note: A separate document where the borrower agrees in writing to repay the loan.
• Real property: The land and anything permanently attached to it, like a building.
• Power-of-sale clause: Gives the trustee the right to sell the property without a court order if the borrower defaults.
• Equitable title: Lets the borrower use and live in the property.
• Nonjudicial foreclosure: A foreclosure process where the trustee can sell the property without going to court.

FAQs

What is the disadvantage of a deed of trust?

If the borrower defaults, the property can be sold faster through a nonjudicial foreclosure process, which gives the borrower less time to respond than judicial foreclosure. From a lender’s point of view, however, there aren’t many disadvantages.

Is a deed of trust the same as a title?

No, a deed of trust is a loan agreement used to secure a loan. A title is the legal record of who owns the property.

What’s the difference between a deed of trust and a mortgage?

A deed of trust has three parties: borrower, lender, and trustee, like an escrow company or title company. A mortgage is different. A mortgage involves only the borrower and the mortgage lender. Some states use only trust deeds, others use mortgages, and some allow lenders to choose. A real estate attorney can help you determine what your state uses.

Can you sell a house with a deed of trust?

Yes, you can sell it, but the loan usually needs to be paid off at or before closing. The trustee will release the lien once the balance is paid and the property deed will be transferred to your name.