What is a Deed of Trust? - Definition & Overview

What is a Deed of Trust? - Definition & Overview
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  • 0:01 Deed of Trust Defined
  • 1:40 Key Provisions
  • 3:12 Distinguished from Mortgage
  • 3:52 Lesson Summary
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Lesson Transcript
Instructor: Shawn Grimsley
Many lenders don't utilize mortgages when financing property but rather use deeds of trust. In this lesson, you'll learn what a deed of trust is and be given a general overview of it. A short quiz follows.

Deed of Trust Defined

Brittany is at her bank meeting with her personal banker, Barry, seeking approval on a loan to purchase her first home. She was surprised to find out she will not have to mortgage her property to finance the purchase. Instead, the bank is requiring a deed of trust. She asks Barry to explain.

Barry tells Brittany that a deed of trust is an alternative method to mortgages in some states that lenders can use to secure payment of home loans. Barry explains that a deed of trust is an agreement involving three persons:

  • The trustor
  • The trustee
  • The beneficiary

The trustor is the borrower who grants the deed of trust. The trustee is a neutral third party that receives legal title of the real estate from the trustor and holds it for the benefit of the beneficiary. The beneficiary is the lender. Should Brittany default on her loan, the trustee has the power to sell the property for the benefit of the beneficiary so the sale proceeds can be used to pay the defaulted loan.

Brittany is still confused and asks Barry why she should agree to give up legal ownership of the property. Why pay all that money and not even legally own the house? Barry explains that while the trustee under a deed of trust holds legal title, she'll still hold equitable title to the property, which means she'll be able to occupy, use, and enjoy it. Once she has paid off her loan, the trustee will be legally obligated to deed legal title back to Brittany, at which point her equitable title and legal title merge into one.

Key Provisions

Brittany is still skeptical and asks Barry for a copy of the deed of trust to study it. Barry's happy to oblige and lets Brittany take home a standard deed of trust form. Upon careful review of the form, she notes the following important provisions:

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