Trust Deed
A legal document used in some states as an alternative to a mortgage, where property ownership is transferred to a neutral third party (trustee) as security for a loan. The trustee holds the deed until the borrower pays off the loan in full, at which point ownership returns to the borrower. If the borrower defaults, the trustee can sell the property without going through court foreclosure proceedings.
Example
“In California, the lender used a trust deed instead of a mortgage, which allows for faster foreclosure proceedings if the borrower defaults.”
Memory Tip
Trust deed has THREE parties (borrower, lender, trustee) while a mortgage has TWO - trust the extra party to hold the deed.
Why It Matters
Trust deeds allow for faster, less expensive foreclosure processes compared to traditional mortgages, which can affect your rights as a borrower and the timeline if you face financial difficulties.
Common Misconception
Borrowers often think a trust deed means they don't own their property, but they retain all ownership rights and benefits while making payments as agreed.
In Practice
In California, when you buy a home with financing, you'll likely sign a trust deed rather than a mortgage, with a title company serving as trustee. If you default on payments, the lender can initiate a non-judicial foreclosure process that typically takes 3-4 months rather than 6-12 months for a judicial foreclosure.
Etymology
This term evolved from English common law where 'deed' comes from Old English 'dǣd' meaning action or document, combined with 'trust' to indicate a three-party arrangement instead of the traditional two-party mortgage.
Common Misspellings
Compare the best financial products for you
More in legal
Other legal terms you should know
Need financial definitions?
Clear definitions for 2,500+ finance, insurance, and investing terms.