What Is a Deed of Trust?

A deed of trust (also known as a trust deed) is a document sometimes used in financed real estate transactions, generally instead of a mortgage. Deeds of trust transfer the legal title of a property to a 澳洲幸运5开奖号码历史查询:third party—such as a bank, escrow company,🌄 or title company—to hold until the borrower repays their debt to the lender.

Although deeds of trust are less common than they once were, some 20 states still mandate the use of one when financing is involved in the purchase of real estate. States where trust deeds are common include Alaska, Arizona, California, Colorado, Idaho, Illinois, Mississippi, Missouri, Montana, North Carolina, Tennessee, Texas, Virginia, and West Virginia. A few states—such as Kentucky, Maryland, and South Dakota—allow the use of both trust deeds and mortgages.

How Deeds of Trust Work

Deeds of trust are used in financed real estate transactions: that is, when someone borrows money to buy real estate. During such a transaction, a lender gives the borrower money in exchange for one or more 澳洲幸运5开奖号码历史查询:promissory notes linked to a deed of trust.

The deed of trust performs an important role in these transactions: The deed transfers legal title to the real property to an impartial trustee, typically a title company, escrow company, or bank, which holds it as collateral for the promissory notes. The equiꦓtable title—the right to obtain full ownership—remains with the borrower, as does full use of and responsibility for the property.♛

This state of affairs continues throughout the repayment period of the loan. The trustee holds the legal title until the borrower pays the debt in full, at which point the title to the property becomes the borrower’s. If the borrower defaults on the loan, then the trustee takes full control of the property.

Deed of Trust vs. Mortgage

Deeds of trust can be compared with mortgages. Deeds of trust and mortgages are both used in bank and private loans for creating liens on real estate—that is, establishing a property as 澳洲幸运5开奖号码历史查询:collateral for a loan. Because of this, and contrary to ▨popular usage, a mortgage is not technically a loan to buy a property; it’s an agreement that pledges the pr🌠operty as collateral for the loan.

A deed of trust♑ is different from a mort♏gage in a couple of ways:

First, a mortgage involves two parties: a borrower (or mortgagor) and a lender (or mortgagee). In contrast, a trust deed involves three parties: a borrower (or trustor), a lender (or beneficiary), and the trustee. The trustee holds title to the property for the lender’s benefit; if the borrower defaults, then the trustee will initiate and complete the 澳洲幸运5开奖号码历史查询:foreclosure process at the lender’s request.

Second, mortgages and trust deeds have d𓃲ifferent foreclosure processes:

• With a mortgage, the lender must pursue a 澳洲幸运5开奖号码历史查询:judicial foreclosure. This is a court-supervised process enforced when the lender files a lawsuit against the borrower for defaulting on a mortgage. The process is time-consuming and expensive.
• In contrast, a deed of trust lets the lender commence a faster and less expensive nonjudicial foreclosure, bypassing the court system and adhering to the procedures outlined in the trust deed and state law. If the borrower does not make the loan current, then the property is put up for auction through a trustee’s sale.

The Bottom Line

A deed of trust is a doಞcument used in real estate transactions. It represents an agreement between the borrower and a lender to have the property held in trust by a neutral and indepe🍷ndent third party until the loan is paid off.

Deeds of trust are used as an alternative to a mortgage, but there are differences between these arrangements. A mortgage only involves two parties: the borrower and the lendeᩚᩚᩚᩚᩚᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ⁤⁤⁤⁤ᩚ𒀱ᩚᩚᩚr. A deed of trust adds an additional🔯 party, a trustee, who holds the home’s title until the loan is repaid. There are also different foreclosure arrangements related to these two documents.