Deed of Trust
A deed of trust is a security instrument used instead of a mortgage in some states, involving three parties: the borrower (trustor), lender (beneficiary), and neutral third party (trustee) who holds legal title until the loan is paid.
Exam Tip
Deed of trust = 3 parties (trustor/borrower, beneficiary/lender, trustee). Mortgage = 2 parties. Deed of trust uses non-judicial foreclosure (faster)!
What is a Deed of Trust?
A deed of trust is a legal document used in real estate transactions as an alternative to a mortgage. It creates a three-party arrangement where a trustee holds the property's legal title as security for a loan until the borrower repays the debt.
Three Parties Involved
| Party | Role | Description |
|---|---|---|
| Trustor | Borrower | Person borrowing money and pledging property |
| Beneficiary | Lender | Bank or lender providing the loan |
| Trustee | Neutral Third Party | Holds legal title until loan is paid (often a title company) |
Deed of Trust vs. Mortgage
| Feature | Deed of Trust | Mortgage |
|---|---|---|
| Number of Parties | 3 (trustor, beneficiary, trustee) | 2 (borrower, lender) |
| Who Holds Title | Trustee holds legal title | Borrower holds title (lender has lien) |
| Foreclosure Type | Non-judicial (faster) | Judicial (through courts) |
| Foreclosure Timeline | Typically 3-4 months | 6 months to 2+ years |
| Power of Sale | Yes, trustee can sell | Varies by state |
How a Deed of Trust Works
| Stage | What Happens |
|---|---|
| At Closing | Borrower signs deed of trust; trustee holds legal title |
| During Loan | Borrower makes payments; holds equitable title (right to use) |
| Loan Paid Off | Trustee transfers full title back to borrower (reconveyance) |
| Default | Trustee can sell property to repay lender |
Non-Judicial Foreclosure Process
| Step | Description |
|---|---|
| 1 | Borrower defaults on payments |
| 2 | Lender notifies trustee |
| 3 | Trustee sends Notice of Default |
| 4 | Waiting period (varies by state) |
| 5 | Trustee publishes Notice of Sale |
| 6 | Trustee conducts public auction |
| 7 | Trustee transfers title to highest bidder |
States That Use Deeds of Trust
Common deed of trust states include:
- California
- Texas
- Virginia
- Colorado
- Arizona
- Washington
- Oregon
- North Carolina
Important Documents
| Document | Purpose |
|---|---|
| Deed of Trust | Security instrument pledging property |
| Promissory Note | Borrower's promise to repay debt |
| Deed of Reconveyance | Releases property when loan is paid |
Exam Alert
- Deed of trust has THREE parties: trustor (borrower), beneficiary (lender), trustee
- Mortgage has TWO parties: borrower and lender
- Deed of trust allows NON-JUDICIAL foreclosure (faster, no court)
- Mortgage typically requires JUDICIAL foreclosure (through courts)
- Trustee holds legal title; borrower holds equitable title
- Upon payoff, trustee issues deed of reconveyance
Study This Term In
Related Terms
Mortgage
Real EstateA mortgage is a loan used to purchase real estate, where the property serves as collateral, typically repaid over 15-30 years with interest.
Deed
Real EstateA deed is a legal document that transfers ownership (title) of real property from one party to another.
Foreclosure
Real EstateForeclosure is the legal process by which a lender takes ownership of a property when the borrower fails to make mortgage payments, typically after several months of default.
Promissory Note
Real EstateA promissory note is the borrower's written promise to repay a loan, containing the loan terms including principal amount, interest rate, payment schedule, and maturity date. It is the "IOU" document that creates the debt obligation, separate from the mortgage or deed of trust that secures the loan with property.
Title
Real EstateTitle is the legal right to own, use, and dispose of real property, representing the bundle of rights that come with property ownership.