If you're buying a home or refinancing, you've probably encountered a stack of paperwork that includes something called a deed of trust. This legally binding document is one of the most important pieces of your real estate transaction—yet most home buyers sign it without fully understanding what it means.
Let's break down exactly what a deed of trust is, how it works, and why it matters for your financial future.
Quick Answer: What Is a Deed of Trust?
A deed of trust is a legal document that secures a home loan by involving three parties: the borrower (you), the lender (the bank or mortgage company), and a neutral third party called the trustee. Unlike a traditional mortgage that involves just two parties, a deed of trust lets an impartial trustee—typically a title company or escrow company—hold the property's legal title as security until the loan is fully repaid.
Here's why this matters: if the borrower defaults on payments, the trustee can initiate a faster, often nonjudicial foreclosure process without going through the court system. About 20 U.S. states—including California, Texas, Virginia, and North Carolina—commonly use deeds of trust instead of, or alongside, traditional mortgages.
Example
Say you purchase a home in California. At closing, you sign a deed of trust along with your promissory note. The escrow company acts as trustee, and the deed of trust gets recorded at the local county recorder's office as a lien against your property. You own and occupy the home, but that recorded lien stays in place until you've paid off the debt in full.
At a Glance:
- Three parties involved (borrower, lender, trustee)
- Creates a lien on real property
- Trustee holds legal title until loan is repaid
- Nonjudicial foreclosure possible in many states
- Recorded as public record with the county recorder
Deed of Trust vs. Mortgage: What's the Difference?
The terms "deed of trust" and "mortgage" are often used interchangeably, but they're not the same thing. The key differences are:
| Feature | Deed of Trust | Mortgage |
|---|---|---|
| Parties Involved | Three (borrower, lender, trustee) | Two (borrower, lender) |
| Title Holder | Trustee holds legal title | Borrower holds title |
| Foreclosure Process | Nonjudicial (faster) | Judicial (court required) |
| Common States | CA, TX, VA, NC, CO, AZ | NY, FL, NJ, OH, IL |
The Three Parties in a Deed of Trust
1. Trustor (Borrower)
This is you—the person buying the home and borrowing money to do so. You sign the deed of trust and the promissory note, agreeing to repay the loan according to its terms.
2. Beneficiary (Lender)
The bank, mortgage company, or financial institution providing the loan. They're called the "beneficiary" because they benefit from the security provided by the deed of trust.
3. Trustee
A neutral third party—usually a title company, escrow company, or attorney—who holds the property's legal title until you pay off the loan. The trustee has two main jobs: release the title to you when you've paid in full, or initiate foreclosure if you default.
What Happens When You Pay Off Your Loan?
When you make your final payment and satisfy the debt, the lender notifies the trustee. The trustee then prepares and records a deed of reconveyance with the county recorder's office. This document officially transfers the property's legal title from the trustee back to you and removes the lien from your property.
Pro Tip
Keep a copy of your deed of reconveyance in a safe place. This document proves you own your home free and clear of any mortgage debt.
Does a Deed of Trust Need to Be Notarized?
Yes. A deed of trust must be signed in front of a notary public to be valid and recorded. The notary verifies the identity of all signers and witnesses the signatures, which is essential for the document to be accepted by the county recorder's office.
At Notary On Demand, we specialize in real estate document notarization. Our mobile notaries come to your location—whether it's your home, office, or the title company—to ensure your deed of trust is properly executed.