Deed of Trust
A legal document used in some states instead of a mortgage, placing property title with a trustee until the loan is repaid.
What is Deed of Trust?
A deed of trust is a legal instrument used in approximately 30 U.S. states as an alternative to the traditional mortgage to secure a real estate loan. Under a deed of trust structure, the property's legal title is transferred to a neutral third-party trustee—often a title company or escrow company—who holds it on behalf of the lender until the loan is fully repaid. The three parties are the borrower (trustor), the lender (beneficiary), and the trustee. If the borrower defaults, the trustee has the power to conduct a non-judicial foreclosure—selling the property without court involvement—which is generally faster and less costly than the judicial foreclosure process required in mortgage states. When the loan is paid off, the trustee transfers clear title back to the borrower by recording a deed of reconveyance. States using deeds of trust include California, Texas, Virginia, and North Carolina.
Example
A California homebuyer takes out a $600,000 purchase loan secured by a deed of trust. Legal title is held by a licensed California title company as trustee. The lender holds the beneficial interest. When the borrower repays the loan in full, the lender instructs the trustee to record a deed of reconveyance, releasing the lien and returning clear title to the homeowner.
Source: Investopedia — Deed of Trust