Deed of Trust

Definition

A Deed of Trust is a legal document that serves as a mortgage, involving three parties: the borrower, the lender, and a trustee.

Purpose

The purpose of a Deed of Trust is to secure a real estate loan by transferring the title of the property to a trustee, who holds it as security for the loan repayment. It provides a legal framework for the lender to foreclose on the property if the borrower defaults on the loan.

Examples of Use

1. Home Purchase: Using a Deed of Trust to secure a mortgage loan for buying a residential property, with the lender holding the title through a trustee.
2. Refinancing: Securing a refinanced loan with a Deed of Trust, allowing the borrower to obtain better loan terms while keeping the property as collateral.
3. Commercial Real Estate: Financing the purchase of commercial property with a Deed of Trust to protect the lender’s investment.

Related Terms

• Mortgage: A loan secured by real property, where the property serves as collateral for the loan.
• Trustee: A third party who holds the title of the property in trust for the lender until the loan is repaid.
• Foreclosure: The legal process by which a lender takes possession of a property due to the borrower’s default on the loan.

Notes

• The Deed of Trust differs from a traditional mortgage primarily in the involvement of a trustee who holds the property title.
• State laws vary regarding the use and enforcement of Deeds of Trust, with some states favoring them over traditional mortgages.
• In the event of loan default, the trustee can initiate a non-judicial foreclosure process, which can be faster than judicial foreclosure.