A security instrument used in many states in place of a mortgage, conveying title to a trustee who holds it until the loan is repaid.
The longer version
A deed of trust is a security instrument that secures a loan with real property, used instead of a mortgage in a number of states, including California and Texas. It does the same job as a mortgage with a different structure: three parties instead of two, and usually a faster path to foreclosure.
The three parties are the trustor, which is the borrower, the beneficiary, which is the lender, and a trustee, typically a title company or attorney. The borrower conveys title to the trustee in trust for the lender's benefit, subject to reconveyance when the loan is paid. The borrower keeps ownership and possession throughout.
The practical difference is the power of sale. A deed of trust usually lets the trustee sell the property through a non-judicial foreclosure if the borrower defaults, following the state's notice and timing rules, without filing a lawsuit. A mortgage in a judicial foreclosure state requires a court process, which takes longer.
In a commercial loan the deed of trust is one of the core recorded documents, usually combined with an assignment of leases and rents, a security agreement covering personal property, and a fixture filing. It must be recorded in the county where the property sits, and the recorded original coming back from the county is a classic trailing item for the closing binder.
Common questions
- What is a deed of trust in real estate?
- A recorded document that secures a loan with real property. The borrower conveys title to a trustee for the lender's benefit until the loan is repaid. It serves the same purpose as a mortgage and is used instead of one in a number of states.
- What is the difference between a deed of trust and a mortgage?
- A mortgage involves two parties, the borrower and the lender. A deed of trust adds a third, the trustee, and usually includes a power of sale that allows non-judicial foreclosure. A mortgage in a judicial state requires a court process to foreclose.
- Does a deed of trust show ownership?
- No. Ownership is shown by the vesting deed, such as a grant or warranty deed. A deed of trust is a security instrument. The borrower remains the owner and the trustee holds title only as security until the loan is repaid and the property is reconveyed.
- Who are the parties to a deed of trust?
- The trustor, which is the borrower, the beneficiary, which is the lender, and the trustee, usually a title company or attorney who holds the power of sale and reconveys the property when the loan is paid off.