Contract Glossary
Deed of Trust
Definition
A legal document used in real estate transactions where a borrower transfers legal title of a property to a neutral third party (the trustee) as security for a loan. If the borrower defaults, the trustee can sell the property through a non-judicial foreclosure, faster and cheaper than going to court. Once the loan is paid off, the trustee reconveys the title back to the borrower.
In Practice
You're buying a commercial property for $500,000. The bank lends you $400,000 and requires a deed of trust. Three parties are involved: you (the trustor/borrower), the bank (the beneficiary/lender), and a title company (the trustee). The title company holds legal title as security. If you make all your payments, the title company reconveys full title to you when the loan is paid off. If you default, the title company can foreclose and sell the property, in many states without going to court, to repay the bank.
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