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What is a Deed of Trust?

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A deed of trust is a legal agreement that’s similar to a mortgage, which is used in real estate transactions. Whereas a mortgage only involves the lender and a borrower, a deed of trust adds a neutral third party that holds rights to the real estate until the loan is paid or the borrower defaults.

How does a deed of trust work?

In a deed of trust, both the borrower and the lender entrust an independent third party — typically the title company — to hold legal rights over the real estate securing the loan. Once the borrower fully repays the loan, the third party — the trustee — releases all rights to the owner. If the borrower defaults on the loan, the trustee forecloses on the property, sells it and divides the money accordingly.

The three parties involved in a deed of trust are:

  • The borrower is the trustor
  • The third party who holds the title is the trustee
  • The lender is the beneficiary

A deed of trust can benefit the lender because it typically allows a faster foreclosure on a home. Most deeds of trust have a “non-judicial foreclosure” clause, which means that the lender won’t have to wait for the court system to review and approve the foreclosure process.

Deed of trust vs. mortgage

Both a deed of trust and a mortgage are tied to your home loan and involve an agreement between you and your lender. They both give the lender a way to foreclose on your home and are subject to state laws.

Here are the differences that apply in most states:

Deed of trust Mortgage
Who holds the title   The trustee The borrower
How a foreclosure happens The trustee can sell the property without a court order The lender must attain a court order
Who’s involved Three entities: The borrower, the lender and the trustee Two entities: The borrower and the lender

Whether you have a deed of trust versus a mortgage is disclosed in your home’s closing statement.

Frequently asked questions

What is a trustee in real estate?

The trustee is an independent third party — typically the title company.

What is a trustor vs trustee?

In a deed of trust, a trustor is the borrower and the trustee is a third party that holds the property’s title. The trustee is entrusted with the title and the right to sell the property if the trustor defaults on the loan.

What is a deed of trust on a property?

A deed of trust on a property means that the property is collateral for a loan. If the loan is not repaid, the lender can take possession of the property.

Who can be listed on a deed of trust or mortgage?

On a deed of trust, the borrower(s), the lender and the trustee are listed. On a mortgage the borrower(s) and lender are listed.

What if there’s a recording mistake on the deed of trust or mortgage?

A recording mistake on a deed of trust or mortgage can be corrected.

What is a warranty deed vs. a deed of trust?

A deed of trust is a type of loan, whereas a warranty deed is a certificate that shows you have the clear title to a piece of real estate and all the rights associated with full ownership.

Does the deed of trust or mortgage have any impact on how I hold title to my home?

The trustee in a deed of trust holds the title in most states; in other, the trustee will only hold a lien. With a mortgage, in most states, the borrower holds the title.

How is a deed of trust recorded in public records?

Deeds of trust are recorded in public government records with the recorder or registrar of titles in the county where the real estate is located.

 

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