What is a trust deed? A trust deed, also known as a deed of trust, is an agreement between a borrower and a lender to give a property to a neutral third party. The third party serves as the trustee and retains the property until the debt has been paid in full by the borrower. During the repayment period, the borrower retains the equitable title to the party, along with full responsibility of the premises. The trustee holds legal title to the property.

Deed of Trust vs. Mortgage

At a big picture glance, both a deed of trust and a mortgage serve the same function. Both documents secure repayment of a loan by placing a lien on a property. In both instances, the lien gives rights to the lender that, unless the debt is paid in full, the lender has a legal right to sell the property to recoup losses. Essentially, both a deed of trust and a mortgage exist to ensure the borrower pays the lender.

However, with a mortgage, only two parties are involved. With a trust deed, there’s an additional party, the trustee, who holds the title until the loan is repaid. If the loan isn’t repaid, the trustee has grounds to put the property into foreclosure.

In the event that a borrower isn’t able to pay a mortgage, the foreclosure process must be filed through the courts, known as a judicial foreclosure. With a deed of trust, court filing isn’t necessary.

Be aware that not all states allow trust deeds. You can apply for a deed of trust in California, along with many other states, including Alabama, Colorado, Georgia, Hawaii, Idaho, Michigan, and many others.

First Trust Deeds

A first trust deed is often called a modern-day mortgage. The legal document gives the mortgage lender the legal right to foreclose on and sell your property if you default on the loan. A first trust deed has priority over all other mortgages or trust deeds on the property.

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This means that if you take out a second mortgage or a home equity loan or line of credit on your home, the first trust deed maintains priority. Be aware that having a first trust deed for sale on your home does put second lenders in a less secure position. When applying for a second mortgage or a home equity line of credit on a property with a first trust deed, expect higher interest rates.

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