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What is a Deed of Trust?

By Thomas Mitchell

In real estate transactions, a trust deed or a deed of trust is a deed in which the legal title in real property is transferred over to a trustee, who holds it as security for a debt between a borrower and a lender. The borrower retains the equitable title however. In a deed of trust, the lender is referred to as the beneficiary of the deed of trust and the borrower is referred to as the trustor.

Business transactions involving a deed of trust are usually set up so that the lender gives money to the borrower to buy the property, the borrower gives money to the seller, the seller executes a grant deed and gives the property to the borrower, and the borrower executes a deed of trust so that the property goes to the trustee to be held in trust for the beneficiary. An escrow holder is almost always used so that the transaction doesn't close until the escrow holder has the grant deed, deed of trust, and money. If one of the parties is unable to complete their end of the deal the transaction can be rolled back.

A deed of trust is different from a mortgage because deeds of trust always have three or more parties involved, where the third party is the legal title holder. With mortgages the mortgagor gives the legal title to the mortgagee directly. In both cases the equitable title remains held by the borrower. Deeds of trust are usually recorded with a county clerk or recorder for the country where the property is located so that there is security for and evidence of the debt. Constructive notice is provided to the world that the property is encumbered by the act of recording. After the debt has been fully paid back the beneficiary is by law, required to immediately have the trustee transfer the property back to the trustor by way of reconveyance, which releases the security for debt. Deeds of trust can also be used for other transactions where real estate is simply offered as collateral, as well contracts not involving loans.

In addition to New Hampshire, a deed of trust is a common way to finance real estate purchases in West Virginia, Virginia, Texas, Oregon, Nevada, Montana, Mississippi, Idaho, Colorado, Arizona, Alaska, California, the District of Columbia, Maryland, Missouri, Nebraska, North Carolina, Tennessee, Utah, and Washington

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