Deed of trust


When acquiring a home or property, numerous legal and financial issues can perplex even the savviest buyers. One of these phrases is ,Deed of Trust, as it may sound like something out of a medieval land deal, yet it is a regular document used in real estate transactions today. Whether you're a first-time homeowner or an experienced investor, knowing what a Deed of Trust is and how it works is critical for protecting your real-estate investment from all legal hazards. So, let’s table this concept in brief.

Meaning of Deed of Trust

A Deed of Trust is a legal document to secure a loan or mortgage in real estate transactions. It is a three-party arrangement between the borrower and lender third-party trustee.

Fig 1: Deed of Trust

The paper serves as a collateral guarantee or pledge for the loan, granting the lender the right to repossess the property if the borrower fails to repay the loan as agreed.

Example of Deed of Trust

Suppose you are a homebuyer trying to purchase a $500,000 property. You don't have enough cash to pay for the property, so you take out a $400,000 loan from a bank to finance the purchase. The bank wants you to sign a Deed of Trust to secure the loan.

In this case, the Deed of Trust would spell down the loan's terms, such as the interest rate, payment schedule, and any late payments or default penalties. It would also include a legal description of the purchased property and the name of the trustee holding the Deed of Trust on the lender's behalf.

Deed of Trust Explained

When a borrower obtains a home loan, the lender asks the borrower and a trustee to sign a Deed of Trust. The trustee is usually a neutral third person unrelated to the borrower or the lender. The trustee operates as a neutral party and holds the Deed of Trust on behalf of the lender.

Fig 2: Deed of Trust Agreement

Once the loan is accepted, the Deed of Trust is recorded in the locality or region where the property is located. It makes the lien on the property public and protects the interests of all parties involved. Deed of Trust's loan conditions must be followed even though the borrower still owns the property.

If the borrower makes all payments on time and follows the terms of the loan, the trustee will return the Deed of Trust to the borrower once the debt has been entirely paid off. If the borrower fails to repay the debt, the trustee will pursue the legal process described in the Deed of Trust to allow the lender to repossess the property.

Components of Deed of Trust

A Deed of Trust is a legal instrument that describes the terms of a real estate loan and serves as collateral. It usually includes the following elements −

  • Parties

  • Property Description

  • Loan terms

  • Rights and duties

  • Foreclosure procedures

  • Signatures

  • Notary public

Difference between Deed of Trust and Mortgage

A Deed of Trust and Mortgage finance differ significantly. A Deed of Trust involves three parties, whereas a mortgage only involves two.

The following table illustrates the distinctions between a Deed of Trust and a Mortgage −

Deed of Trust Mortgage
Involves three parties: borrower, lender, and trustee.Involves two parties: borrower and lender.
A trustee holds the property as collateral for the loan.The borrower retains ownership of the property.
Foreclosure is handled by the trustee, who sells the property to pay off the loan.Foreclosure is handled by the lender, who can either sell the property or keep it as collateral.
The trustee must act in the best interest of both the borrower and the lender.If the borrower defaults, the lender has the power to seize the property.
The trustee has the power to sell the property without court approval.The lender must go through the court system to initiate foreclosure.
Used in some states, such as California and Texas.Used in some states, but not as commonly as the Deed of Trust.

Commonalities Between Deed of Trust and Mortgage

A Deed of Trust and a Mortgage are popular legal documents to secure real estate loans. They share a variety of traits, including the following −

  • A loan agreement between a borrower and a lender is involved in both.

  • Both are used to secure a loan using the purchased property as collateral.

  • Both require the borrower to make timely payments following the loan agreement's terms.

  • Both provide a legal framework for settling borrower-lender issues.

  • Both entail legal procedures for dealing with defaults, such as foreclosure.

  • Both require the presence of a notary public to confirm that the documents are signed voluntarily and that the parties' names are verified.

Deed of Trust: Is it Good Over the Mortgage?

Deed of Trust or Mortgage – They are multiple factors that determine the financing choice, including the state and local laws and the preferences of the individuals engaged in the transaction. Upon failing to meet the Deed of Trust terms, the collateral asset goes into foreclosure where the borrower have less bargaining power to negotiate settlement.

The borrower has to go for hiring a new lawyer to deal with the judicial process which can lead for months. Mortgages are more widespread in some states and may be favored by borrowers who want to keep property ownership while financing the loan.


A Deed of Trust is a vital legal document that aids you in securing a real estate deal by utilizing the purchased property as collateral. There are three parties involved in Deed of Trust. The foreclosure procedure takes place if the borrower fails to deliver the terms as discussed in the agreement.

However, it non-judicial closure for Deed of Trust, whereas, judicial closure from a mortgage. When engaging in a real estate transaction, it is critical to understand the distinctions and similarities between the two. Dealing with an expert real estate attorney can help you make the best decision for your specific situation.


Q1. Is it possible to transfer a Deed of Trust to another party?

Ans. Yes, the original trustee can transfer a Deed of Trust to another party. This is called a "substitution of trustee" and necessitates correct legal documentation.

Q2. After a Deed of Trust foreclosure, what happens to the property?

Ans. Following a Deed of Trust foreclosure, the property is auctioned off to the highest bidder. The proceeds are used to pay off the loan's outstanding sum, with any remaining funds being returned to the borrower.

Q3. Is it possible to modify a Deed of Trust?

Ans. Yes, a Deed of Trust can be changed if both the borrower and the lender agree. This could include increasing the interest rate, extending the loan duration, or amending other arrangement elements.

Updated on: 05-Apr-2023


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