How Does a Deed of Trust Work?

It is essential to learn about the ins and outs of investing in trust deeds when doing financed real estate transactions, which involve the sale or purchase of a property.

Deeds of trust, also known as trust deeds, are often used instead of mortgages. Third parties, such as banks, escrow companies, or title companies, hold the legal title of a property until the borrower repays the lender their debts.

Deeds of trust may be required if you are financing a home purchase based on your lender and state. Listed below are some things you should know about this contract and what it involves.

Investing in Trust Deeds: How Does It Work?

During financed real estate transactions, trust deeds are used when a person borrows money to buy a property. Lenders commonly provide money to borrowers via promissory notes linked to trust deeds.

During these transactions, a trust deed in real estate plays an important role. Legal title to the real property is transferred to a trustee, usually a title company, escrow firm, or bank that holds the note as collateral.

Equitable title, which gives an individual the right to obtain full ownership of a property, remains with the borrower, as well as full responsibility for that property.

While the loan is being repaid, this state of affairs continues. Trustees hold the legal title to the property until the borrower pays the debt in full, at which point the borrower takes ownership. The trustee assumes full control over the property if the borrower defaults in payments.

It is possible to use a deed of trust instead of a mortgage. Two parties are involved in a mortgage: a borrower and a lender. By contrast, a deed of trust involves three parties: the borrower, the lender, and the trustee.

What is Included in a Deed of Trust?

Your deed of trust contains important information about your property, loan, and related terms and conditions, much like your mortgage. A deed of trust typically outlines the following:

  • The names of all parties involved
  • The amount and repayment terms of the original loan
  • The legal description of the property
  • The loan origination and maturity dates
  • The fees
  • The number of clauses, including acceleration and alienation clauses
  • The riders regarding the clauses outlined

Deeds of trust often include acceleration and alienation clauses. The acceleration clause can trigger if you’re delinquent on your loan—basically a demand for immediate repayment.

In trust deed investing, this can happen as soon as a borrower misses just one payment, though lenders often give borrowers a few months to catch up.

You may also find a power of sale clause in your deed of trust, depending on your state. As a result, the lender is able to foreclose on your home much faster compared to if the lender had to engage the state courts in a judicial foreclosure.

Deed of Trust V​​​​s. Mortgage

In some ways, trust deeds can be compared to mortgages. Banks and private lenders use deeds of trust and mortgages to create liens on real estate-that is, to secure loans with collateral. Therefore, a mortgage is not technically a loan to purchase a property; instead, it is a pledge of collateral secured by the property.

There are, however, a few ways in which a deed of trust differs from a mortgage.

Lenders must pursue judicial foreclosure when foreclosing on a mortgage. A lender files a lawsuit against a borrower who defaults on their mortgage, and this is a court-supervised process. This process takes a long time and is expensive.

Deeds of trust, in contrast, allow lenders to commence a faster, less costly nonjudicial foreclosure method without having to go through the court system, as laid out in the deed of trust. The property is sold at auction by a trustee’s sale if a borrower is unable to make payments on the loan.

A deed of trust has a number of advantages over a mortgage from the lender’s perspective. In the event the borrower defaults on the loan, the trustee may foreclose on the property on behalf of the lender.

Are Trust Deeds Right for You?

The prospect of becoming a homeowner is always exciting. A potentially stressful experience becomes easier to manage when you’re informed about the process and confident in your knowledge. Taking out a deed of trust or paying off an existing mortgage on your home is a big decision, so you want to make sure you decide on the best possible one.Our team of professionals is available to help you with any questions you may have about trust deed investment. Send us an email at or give us a call at 949-881-7128 at Saint Investment Group today!