A deed of trust is an instrument used to transfer legal title to a piece of property from the grantor (person transferring the property) to a trustee (the designee who holds title). While this may seem confusing at first, the concept is quite simple. When you sign a deed of trust, you are essentially granting legal title to the trustee, which is normally a bank, who will hold the deed for the benefit of a lender.
In essence, a deed of trust is an agreement between three parties: the grantor, the trustee, and the beneficiary. The grantor is the person transferring title, the trustee is the one holding the deed, and the beneficiary is the financial institution that will secure the loan. A deed of trust is similar to a mortgage in that it secures a loan against a pledge of property owned by the grantor.
What Is the Difference Between a Mortgage and a Deed of Trust?
The main difference between a mortgage and a deed of trust is who holds title to the property after the grantor signs it. In a mortgage arrangement, the borrower holds title until the loan is repaid. In a deed of trust, the trustee holds title to the property. In both cases, the lender (beneficiary) retains a lien on the property until the loan is repaid.
Are Deeds of Trust Still Relevant?
Yes! In many states, a deed of trust is still a commonly used and important legal tool. It is a simple-to-understand and relatively straightforward way to transfer legal title to a property for the purpose of securing a loan. Deeds of trust remain an important part of real estate law and financial transactions today.