A deed of trust is a legal document used primarily in real estate transactions to secure a loan by transferring the legal title of a property to a neutral third party, called the trustee, until the borrower repays the debt to the lender
. It involves three parties: the borrower (trustor), the lender (beneficiary), and the trustee (often a title company or bank)
How it works:
- The borrower receives a loan from the lender to purchase real estate.
- The borrower transfers the legal title of the property to the trustee as security for the loan.
- The borrower retains equitable title, meaning they have the right to use and enjoy the property.
- Once the loan is fully repaid, the trustee transfers the legal title back to the borrower.
- If the borrower defaults, the trustee can take control of the property and sell it, often through a non-judicial foreclosure process, without court involvement
Key points:
- A deed of trust is an alternative to a mortgage, which involves only two parties (borrower and lender), whereas a deed of trust involves three parties
- It is commonly used in certain U.S. states such as California, Texas, and Virginia, among others
- The deed of trust outlines terms like loan amount, property description, parties involved, and consequences of default
- It is recorded with the local county to provide public notice of the lender's security interest in the property
Other uses:
- In some contexts, a deed of trust can also refer to an agreement between co-owners of a property (tenants in common) to specify their ownership shares and responsibilities, especially when they contribute different amounts toward the purchase
In summary, a deed of trust is a legal instrument that secures a real estate loan by placing the property's legal title in the hands of a trustee until the debt is satisfied, providing protection to both borrower and lender
