Deed Of Trust Definition and Legal Meaning
On this page, you'll find the legal definition and meaning of Deed Of Trust, written in plain English, along with examples of how it is used.
What is Deed Of Trust?
n. A legal document that pledges real property in order to secure a loan. This deed is used in place of a mortgage in the following states: Alaska, Arizona, California, Colorado, Georgia, Idaho, Illinois, Mississippi, Missouri, Montana, North Carolina, Texas, Virginia, and West Virginia. The title holder (trustor) deeds the property to a trustee which then holds the title in trust for the lender of the money (beneficiary). The trustor requests the title’s return by reconveyance from the trustee when the loan has been fully paid. The beneficiary can file a notice of default if the loan become delinquent. If the loan is not brought current, the beneficiary can demand that the trustee initiate foreclosure on the property so that they can obtain title or be paid.
History and Meaning of Deed Of Trust
A Deed of Trust is a legal arrangement where a borrower transfers the legal title of their property to a third-party trustee to secure a loan. The trustee holds the title until the borrower repays the loan, at which point the trustee will transfer the title back to the borrower. If the borrower defaults, the trustee may initiate foreclosure proceedings on behalf of the lender. Though similar to a mortgage, a Deed of Trust differs in that it involves three parties, rather than two. This legal document is used in many states across the United States.
The modern concept of a Deed of Trust can be traced back to 16th-century England, where property ownership was typically transferred by way of a Trust agreement. The use of Trust agreements helped facilitate commercial transactions by enabling people to lend funds without requiring physical possession of property as collateral. Today, Deeds of Trust are widely used in American real estate transactions as a means of securing loans.
Examples of Deed Of Trust
- John took out a loan from the bank and used his property as collateral. The bank required him to sign a Deed of Trust, transferring legal title of the property to a trustee that held the title as a security for the loan until John paid it off in full.
- Jessica obtained a loan from a private lender to purchase a new home. As part of the arrangements, she signed a Deed of Trust, which gave the lender a security interest in the property, allowing the lender to foreclose on the property if Jessica defaulted.
- Tom and his wife Sarah wanted to sell their home but still had a mortgage on the property. After finding a buyer, they contacted their mortgage lender and arranged for a release of the Deed of Trust, allowing them to transfer clear title of the property to the new owners.
Legal Terms Similar to Deed Of Trust
- Mortgage - A legal arrangement where a borrower pledges their property to secure a loan, involving two parties: the borrower and the lender. With a mortgage, the lender holds the property title until the borrower repays the loan.
- Secured Loan - A type of loan where the borrower pledges an asset as collateral to secure the loan. It is similar to a Deed of Trust, but it does not involve a third-party trustee.
- Foreclosure - A legal process in which a lender seeks to acquire possession of a property from a borrower who has defaulted on their loan. A Deed of Trust allows the trustee to initiate foreclosure proceedings on behalf of the lender.