Deed of Trust

A deed of trust is a legal document used in real estate transactions that transfers the title of a property to a neutral third party–the trustee–to hold as security for a loan. A deed of trust is important for homebuyers, real estate investors, and lenders. 

It creates a three-party arrangement among the borrower, the lender, and the trustee until the loan is repaid in full.

• Lender: The lender is the institution providing the loan. The lender gives the borrower money.
• Borrower: The borrower is the person buying the property. The borrower pays the lender.
• Trustee: The trustee is a neutral third party, usually an escrow company or title company, that holds legal title until the loan is paid.

What does a deed of trust include

You might come across a trust deed when buying a home, refinancing, or using property as loan collateral. Once the loan is fully paid, the trustee transfers the property’s legal title to you.

A deed of trust usually includes the following details: 

• Description of the property
• Names of all parties involved
• Inception and maturity date of the loan
• Original loan amount
• Fees, which may include trustee fees, recording fees, and other loan-related charges
• Riders, which are extra terms that change parts of the agreement
• What happens in case of default, like foreclosure proceedings

How a deed of trust works

When a borrower takes out a real estate loan, the lender may require a deed of trust. The borrower signs the document to secure the loan with the property. Depending on state law, the trustee may hold legal title or have the power to act if the borrower defaults.

The trustee holds bare legal title until the loan pays off in full, while the borrower retains equitable ownership and possession of the property. At payoff, the trustee executes a deed of reconveyance, releasing the lien and returning full legal title to the borrower.

If the borrower defaults, the trustee may sell the property through a nonjudicial foreclosure process if the deed of trust includes a power of sale and state law allows it.

Why it matters

A deed of trust gives a lender a way to recover collateral after a borrower defaults. In states that allow nonjudicial foreclosure, a trustee may sell the property without filing a court case, but the trustee must follow all notice and procedure rules required by law. Nonjudicial foreclosure often moves faster than judicial foreclosure, but borrowers still have any protections available under state or federal law.

Recording a deed of trust in county land records gives public notice of the lender’s security interest in the property. The parties generally must pay off, release, or otherwise resolve that interest before the property can be sold, refinanced, or transferred with clear title.

Deed of trust vs. mortgage

Both instruments secure a real estate loan, but they differ in structure and foreclosure process. A mortgage involves two parties and typically requires judicial foreclosure, which can take months or years depending on the state. A deed of trust involves three parties and generally allows faster non-judicial foreclosure through the trustee's power of sale, with fewer procedural safeguards for the borrower.

Related terms

To fully understand what a deed of trust is, you also need to be familiar with a few related terms.

• Property deed: Transfers ownership of real estate, distinct from a deed of trust, which secures a loan rather than conveying ownership.
• Promissory note: A separate document where the borrower agrees in writing to repay the loan.
• Real property: The land and anything permanently attached to it, like a building.
• Power-of-sale clause: This provision gives the trustee the right to sell the property without a court order if the borrower defaults.
• Equitable title: Lets the borrower use and live in the property.
• Nonjudicial foreclosure: A foreclosure process where the trustee can sell the property without going to court.
• Trustee: The neutral third party who holds legal title and has authority to conduct a foreclosure sale upon default.
• Lien: A claim against property that secures a debt; a recorded deed of trust creates one that must be cleared before a clean title transfer can occur.

FAQs about deed of trust

Does a deed of trust mean the lender owns the property?

No. A deed of trust gives the lender a security interest in the property. The borrower generally keeps the right to use and occupy the property unless a default and foreclosure occur.

What happens when the loan is paid off?

The trustee executes a deed of reconveyance, which releases the lien and transfers the lender’s security interest to the borrower. Until recorded, the deed remains a public encumbrance on the title.

Can a property with a deed of trust be transferred into a revocable trust?

In many cases, yes. The existing lien is not extinguished by the transfer and must still be resolved through payoff and reconveyance before the property can be conveyed. Some lenders require notification or consent before the transfer is completed.

What is the relationship between a deed of trust and a promissory note?

The promissory note is the borrower’s written promise to repay the loan. The deed of trust is the security instrument that gives the lender, through the trustee, a claim against the property if the borrower defaults on the loan. The two documents work together to establish the debt and the collateral that backs it.