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Title & legal

Deed of Trust

Also called Trust deed

In short

A deed of trust is a security instrument used instead of a mortgage in many states. The borrower gives a neutral trustee legal title as security for the loan until it is paid off.

Three parties
Borrower, lender and trustee
Foreclosure method
Usually non-judicial
Used in
Many states, often alongside mortgages
When paid off
Trustee reconveys title

How a deed of trust works

When you borrow to buy a home, you sign a promissory note promising to repay and a security instrument pledging the property. In deed-of-trust states, that instrument gives limited legal title to a trustee, who holds it for the lender (the beneficiary) while you keep full use of the property. When the loan is paid off, the trustee issues a reconveyance releasing the lien.

Deed of trust and foreclosure

Most deeds of trust include a power-of-sale clause. If the borrower defaults, the trustee can sell the property through a non-judicial foreclosure, starting with a notice of default or similar notice and ending with a trustee sale. This is usually faster than a judicial foreclosure.

Where deeds of trust are used

Whether a state uses deeds of trust, mortgages or both is a matter of state law and local practice. Deeds of trust are common in states such as California, Texas, Virginia and Colorado. For most buyers, the difference shows up mainly in how a foreclosure would be handled. Consult a local attorney for the rules where you are buying.

Example

A deed of trust from start to payoff

A buyer borrows $300,000 to buy a $375,000 home in a deed-of-trust state. At closing, the buyer signs a note and a deed of trust naming the lender as beneficiary and a title company as trustee. Twenty years later, the buyer sells and the loan is paid off from the proceeds. The trustee records a reconveyance, and the new owner takes title free of that lien.

Deed of Trust vs. Mortgage

Deed of Trust

A deed of trust is a security instrument used instead of a mortgage in many states. The borrower gives a neutral trustee legal title as security for the loan until it is paid off.

Mortgage

A mortgage is a loan used to buy real estate, secured by the property itself. If the borrower stops paying, the lender can take the property through foreclosure to recover what is owed.

The differenceA mortgage involves two parties, borrower and lender, and often requires a judicial foreclosure. A deed of trust adds a trustee and usually allows non-judicial foreclosure.

Frequently Asked Questions

Related terms

TrusteeForeclosure processIn real estate, a trustee is the neutral third party named in a deed of trust who holds legal title for the lender and can sell the property at a trustee sale if the borrower defaults.Non-Judicial ForeclosureForeclosure processA non-judicial foreclosure is a foreclosure carried out without a lawsuit. A trustee sells the property at auction under the power-of-sale clause in the deed of trust or mortgage.Notice of DefaultForeclosure processA notice of default (NOD) is a public notice, recorded with the county, stating that a borrower has fallen behind on a mortgage or deed of trust and that the lender may move toward foreclosure.LienTitle & legalA lien is a legal claim against a property that secures a debt. It must usually be paid off before the property can be sold with clear title, and the creditor can force a sale in some cases.Notice of Trustee SaleForeclosure processA notice of trustee sale is the public notice, in a non-judicial foreclosure, that sets the date, time and place a trustee will auction a property to repay the defaulted loan.Judicial ForeclosureForeclosure processA judicial foreclosure is a foreclosure that goes through the courts: the lender sues the borrower, a judge orders the sale, and the property is auctioned, often by a sheriff or court officer.Quitclaim DeedTitle & legalA quitclaim deed transfers whatever ownership interest the seller has in a property, if any, without any promise that the title is valid or free of liens.Title SearchTitle & legalA title search is a review of public records to confirm who legally owns a property and to find any liens, judgments, easements or other claims that could affect ownership.

Learn more in the knowledge base

Title, Liens and Due Diligence on Distressed PropertiesGuide · 9 min readDistressed properties often come with debts and paperwork problems attached. A title search, a clear understanding of which liens survive a sale and the right title insurance protect you from inheriting someone else's obligations. This guide explains what to check and when.How Foreclosure Auctions Work: A Guide for First-Time BiddersGuide · 8 min readA foreclosure auction is the public sale where a lender's collateral is sold to repay a defaulted loan. Rules on notice, payment, title and redemption are set by state law, and buyers usually pay cash for a home they have never been inside. This guide explains how the process works so you know what you are bidding on.Closing and Recording: How a Property Purchase Becomes FinalGuide · 7 min readSigning papers is only part of closing. Money has to change hands safely, the deed has to be recorded in the public records and title insurance policies have to be issued. This guide explains those mechanics, who handles each one, how to protect your funds from wire fraud and which records to keep once the purchase is complete.
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Disclaimer: The information on this page is for general educational purposes only and is not legal, financial, tax or investment advice. Laws, lending rules and market conditions vary by state and change over time, and any figures shown are estimates. Before you buy, sell, finance or bid on a property, consult a qualified attorney, financial advisor, lender or licensed real estate professional about your situation.