Deed of Trust

A Deed of Trust is a type of secured real-estate transaction that some states use instead of mortgages. See State Property Statutes.

A deed of trust involves three parties: a lender, a borrower, and a trustee. The lender gives the borrower money. In exchange, the borrower gives the lender one or more promissory notes. As security for the promissory notes, the borrower transfers a real property interest to a third-party trustee. Should the borrower default on the terms of her loan, the trustee may take full control of the property to correct the borrower's default.

Usually, the trustee is a title company. In most states, the borrower actually transfers legal title to the trustee, who holds the property in trust for the use and benefit of the borrower. In other states, the trustee merely holds a lien on the property. See Estates and Trusts.

Deeds of trust almost always include a power-of-sale clause, which allows the trustee to conduct a non-judicial foreclosure - that is, sell the property without first getting a court order. See Foreclosure.

For example, in a typical home loan, the borrower is the person buying the home, the lender is a bank, and the trustee is a title company. The borrower makes monthly payments to the bank. If the borrower goes into default, the title company initiates a non-judicial foreclosure as the bank's agent.

See State Property Statutes; Mortgage; Foreclosure; Debtor and Creditor Law.