A deed of trust is a three-party agreement securing a real estate loan. The borrower (trustor) grants legal title to a neutral third party (trustee) while retaining equitable title. The lender (beneficiary) holds the financial interest. If the borrower defaults, the trustee can sell the property under a “power of sale” clause without court involvement.
Deeds of trust offer speed and cost savings. Buyers enjoy a clearer path to ownership, refinancers execute efficient loan payoffs, and investors gain confidence from faster, nonjudicial foreclosures and streamlined title handling.
The trustor is the borrower. They live in the property, build equity, and must comply with loan terms. Though they hold equitable title, legal title rests with the trustee until the debt is repaid.
The beneficiary provides the funds. Their security is the deed of trust itself, which grants the right to demand payment in full or initiate foreclosure if the trustor defaults.
The trustee is often a title company or attorney. They hold legal title in trust, enforce the power of sale clause, record and reconvey the deed, but must remain impartial throughout the loan term.
Once signed, the deed of trust is filed with the county recorder. This public record establishes the lender’s interest as a lien against the property.
Lenders often sell loans into the secondary market. They assign the deed of trust to new beneficiaries, ensuring the investor’s security interest is preserved.
After the final payment, the trustee issues a deed of reconveyance, restoring full legal title to the trustor and clearing the lien from county records.
In lien theory states, borrowers hold title and the lender records a lien (mortgage). In title theory states, a deed of trust transfers legal title to the trustee, giving the lender stronger collateral control.
Mortgages typically require judicial foreclosure—court action, extended timelines and higher costs. Deeds of trust employ nonjudicial foreclosure via the trustee’s power of sale, which is faster and less expensive.
Some states use deeds of trust exclusively (e.g., California, Texas), others use mortgages or offer both. Terms like “acceleration clause” and “reconveyance” may differ by jurisdiction, so local legal counsel is advised.
Some states grant a post-sale redemption window for borrowers to reclaim the property by paying the sale price plus fees.
A trustee sale guarantee verifies all parties of record before sale. Title insurance protects new owners against pre-existing liens or defects in the reconveyance process.
Submit a payoff request to the beneficiary. Once funds clear, the trustee prepares and records the deed of reconveyance with the county recorder.
Fees vary by state and county but usually include trustee fees, recording costs and processing charges. Reconveyance often takes 2–6 weeks.
Obtain a final title report to confirm the lien’s removal. Retain the recorded reconveyance document to prove clear ownership.
Major deed-of-trust states include California, Texas, Florida and Virginia. Many others use mortgages or allow both instruments.
Yes. Lenders routinely assign deeds of trust to secondary investors. Each assignment must be recorded to maintain lien priority.
Recording and trustee fees apply at origination and reconveyance. Nonjudicial sale notices have statutory waiting periods (often 20–90 days).
Loan policy title insurance protects the lender’s interest under the deed of trust. Owner’s policies safeguard the homeowner’s equity against title defects.
Jane signs a deed of trust in California with XYZ Bank. ABC Title Company acts as trustee, records the trust deed, then disburses funds. Jane makes 360 monthly payments. At payoff, the trustee files reconveyance, and Jane holds clear title.
John sells a rental property to his friend, using a deed of trust to finance. A local attorney serves as trustee. When John’s friend pays off the loan early, the trustee records the release, and John’s friend receives full title.
Deeds of trust offer three-party security, nonjudicial foreclosure and streamlined title management. They differ from mortgages in title theory states and borrower protections.
Always engage qualified counsel or a title company for document drafting, county recording requirements and foreclosure or reconveyance procedures to ensure compliance and protect your interests.
