What is a deed of trust?

A deed of trust is fundamentally a security instrument that involves three parties: the borrower (trustor), the lender (beneficiary), and a neutral third party known as the trustee. This arrangement allows the borrower to use real property as collateral for a loan.

In a deed of trust, the borrower conveys the title of the property to the trustee, who holds it as security for the obligation to repay the loan. In the event of default, the trustee has the authority to initiate a foreclosure process to sell the property on behalf of the lender. This method provides a streamlined process for lenders to recover their funds if the borrower fails to meet the repayment terms.

This definition underscores the deed of trust's role in securing a loan with property, which is why it is considered a critical tool in real estate financing, particularly in states that use this instrument instead of traditional mortgages. The other choices do not encompass the deed of trust's true purpose or functionality.