What is a Deed of Trust?

A deed of trust is essentially an agreement between the lender and borrower stating that a third party will hold the title of the property until the mortgage loan has been repaid by the borrower.

 

Once you can lock in a mortgage with a lender, the rubber meets the road. At this point, the lender will either secure the funds with a mortgage or a deed of trust. Both documents serve a similar purpose: they entitle the lender to the property in the unfortunate event of a default. Nevertheless, there are key differences. 

 

With a mortgage, there are two parties at play — the lender and the borrower. With a deed of trust, there is a third participant, a trustee who will oversee the document until the last loan payment is made. This third party, which might be an escrow firm, is responsible for foreclosing if it comes to that. If there is a default, the lender won’t have to go through the hoops of the court system to cash in with a deed of trust. 

 

You might find smaller or alternative lenders more likely to use a deed of trust, given their nimble nature. 

 

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