What Is a Deed of Trust and How Does It Differ from a Mortgage?

A deed of trust is a legal instrument used in many states to secure a real estate loan. Instead of a traditional mortgage, the borrower (also called the settlor) conveys legal title to a neutral third party—the trustee—while retaining equitable title and the right to use the property (Legal Information Institute). The trustee holds the property in trust for the lender (also called the mortgage lender) until the loan is paid in full. Once the borrower fulfills the payment obligations under the promissory note, the trustee reconveys legal title back to the borrower.

By contrast, under a mortgage, the borrower retains legal title and grants the lender a lien on the property. If the borrower defaults, the lender must satisfy judicial foreclosure requirements—i.e., obtain a court order—before selling the property (Legal Information Institute). In many jurisdictions, the power-of-sale clause in a deed of trust allows the trustee to initiate a non-judicial foreclosure without court involvement, making the process faster and often less costly (Legal Information Institute).

Who Are the Key Parties Involved in a Deed of Trust?

A deed of trust creates a three-party relationship:

• Borrower (Settlor/Grantor): The individual who receives loan proceeds and conveys legal title or a lien interest in the property as security.

• Lender (Beneficiary/Mortgage Lender): The institution or individual providing funds to the borrower. The lender holds equitable title and benefits from the security interest.

• Trustee: A neutral third party—often a title company—that holds legal title (or a lien) on behalf of the lender until the debt is satisfied (Legal Information Institute).

Borrower (Settlor/Grantor): The individual who receives loan proceeds and conveys legal title or a lien interest in the property as security.

Lender (Beneficiary/Mortgage Lender): The institution or individual providing funds to the borrower. The lender holds equitable title and benefits from the security interest.

Trustee: A neutral third party—often a title company—that holds legal title (or a lien) on behalf of the lender until the debt is satisfied (Legal Information Institute).

This structure ensures that if the borrower defaults on monthly payments, the trustee can enforce the power-of-sale clause to begin a non-judicial foreclosure, selling the property at auction to satisfy the debt (Legal Information Institute).

How Does the Foreclosure Process Work under a Deed of Trust?

Foreclosure is the legal process by which a lender—or the trustee on the lender’s behalf—recovers the balance of a loan from a borrower who has stopped making payments. There are two main types:

1. Non-Judicial Foreclosure:

   • Triggered by a power-of-sale clause in the deed of trust.

   • The trustee provides notice of default to the borrower and other parties.

   • After statutory waiting periods and required notices, the trustee auctions the property without court involvement (Legal Information Institute).

   • Typically faster and less expensive than judicial foreclosure.
     
     

2. Judicial Foreclosure:

   • The lender must file a lawsuit and obtain a court order.

   • More time-consuming and costly due to court procedures, but some states require it for certain mortgages (Legal Information Institute).

Non-Judicial Foreclosure:

• Triggered by a power-of-sale clause in the deed of trust.

• The trustee provides notice of default to the borrower and other parties.

• After statutory waiting periods and required notices, the trustee auctions the property without court involvement (Legal Information Institute).

• Typically faster and less expensive than judicial foreclosure.

Triggered by a power-of-sale clause in the deed of trust.

The trustee provides notice of default to the borrower and other parties.

After statutory waiting periods and required notices, the trustee auctions the property without court involvement (Legal Information Institute).

Typically faster and less expensive than judicial foreclosure.

Judicial Foreclosure:

• The lender must file a lawsuit and obtain a court order.

• More time-consuming and costly due to court procedures, but some states require it for certain mortgages (Legal Information Institute).

The lender must file a lawsuit and obtain a court order.

More time-consuming and costly due to court procedures, but some states require it for certain mortgages (Legal Information Institute).

Regardless of method, proceeds from the foreclosure sale go first to pay the deed of trust loan, then to junior lienholders (such as second mortgages or mortgage deeds), with any surplus returned to the borrower (Legal Information Institute).

What Are Common Foreclosure Terms to Know?

Understanding foreclosure terms helps borrowers and lenders navigate defaults:

• Acceleration Clause: Allows the lender to declare the full loan amount due after default.

• Notice of Default: Formal notification that payments are overdue.

• Trustee’s Sale: Auction conducted by the trustee under a non-judicial foreclosure.

• Redemption Period: Time during which the borrower can cure the default by paying all overdue amounts plus fees before the sale is confirmed.

• Deficiency Judgment: A court order requiring the borrower to pay the difference if the property sells for less than the debt owed (Legal Information Institute).

Acceleration Clause: Allows the lender to declare the full loan amount due after default.

Notice of Default: Formal notification that payments are overdue.

Trustee’s Sale: Auction conducted by the trustee under a non-judicial foreclosure.

Redemption Period: Time during which the borrower can cure the default by paying all overdue amounts plus fees before the sale is confirmed.

Deficiency Judgment: A court order requiring the borrower to pay the difference if the property sells for less than the debt owed (Legal Information Institute).

These terms frequently appear in deeds of trust, trust deeds, and mortgage deeds governing real estate loans.

What Happens to the Title During and After Foreclosure?

When a borrower signs a deed of trust, legal title either transfers to the trustee or a lien attaches, depending on state law (Nev. Admin. Code § 319.320). During non-judicial foreclosure, the trustee’s sale transfers title to the highest bidder at auction. In judicial foreclosure, title passes through court-supervised sale procedures. In either case:

• The successful bidder receives a deed—often called a trustee’s deed or sheriff’s deed—which conveys title free of junior liens.

• Junior lienholders (e.g., second trusts or trust deeds) are extinguished.

• Any equity remaining after satisfying debts and costs returns to the former borrower (Legal Information Institute).

The successful bidder receives a deed—often called a trustee’s deed or sheriff’s deed—which conveys title free of junior liens.

Junior lienholders (e.g., second trusts or trust deeds) are extinguished.

Any equity remaining after satisfying debts and costs returns to the former borrower (Legal Information Institute).

Who Bears Liability in Trust and Mortgage Transactions?

• Borrower/Lender Relationship: The borrower signs a promissory note agreeing to repay the lender (12 U.S. Code § 3752).

• Trustee’s Role: The trustee acts impartially, enforcing the deed’s terms but holding no financial stake in the loan.

• Beneficiaries and Trustees: After foreclosure, the lender (beneficiary) orauction purchaser holds the new title. The trustee’s involvement ends upon sale confirmation.

Borrower/Lender Relationship: The borrower signs a promissory note agreeing to repay the lender (12 U.S. Code § 3752).

Trustee’s Role: The trustee acts impartially, enforcing the deed’s terms but holding no financial stake in the loan.

Beneficiaries and Trustees: After foreclosure, the lender (beneficiary) orauction purchaser holds the new title. The trustee’s involvement ends upon sale confirmation.

Borrowers remain liable for any deficiency unless state law prohibits deficiency judgments. Likewise, lenders must comply strictly with notice requirements to avoid challenges based on improper procedure.

How Do Estate Transactions and Trusts Intersect with Deeds of Trust?

In more complex estate transactions, deeds of trust intersect with estate planning documents:

• Individuals may transfer property into a trust (e.g., revocable living trust) to avoid probate, then secure financing using a deed of trust on the trust’s property.

• Trustees named in the trust instrument handle management and can execute or reconvey deeds of trust on behalf of the trust.

• Beneficiaries of the trust hold equitable interests, but the trustee controls legal title until obligations—such as mortgage or trust deed loans—are settled.

Individuals may transfer property into a trust (e.g., revocable living trust) to avoid probate, then secure financing using a deed of trust on the trust’s property.

Trustees named in the trust instrument handle management and can execute or reconvey deeds of trust on behalf of the trust.

Beneficiaries of the trust hold equitable interests, but the trustee controls legal title until obligations—such as mortgage or trust deed loans—are settled.

Understanding these interactions is essential for estate planning to prevent unintended foreclosure trust complications.

What Are the Rights and Remedies of Borrowers and Lenders?

Borrowers have the right to:

• Receive required notices (default, sale).

• Redeem property during statutory redemption periods.

• Challenge improper procedures in court.

Receive required notices (default, sale).

Redeem property during statutory redemption periods.

Challenge improper procedures in court.

Lenders have remedies including:

• Enforcing the power-of-sale clause for non-judicial foreclosure.

• Pursuing judicial foreclosure when necessary.

• Seeking deficiency judgments when allowed by state law.

Enforcing the power-of-sale clause for non-judicial foreclosure.

Pursuing judicial foreclosure when necessary.

Seeking deficiency judgments when allowed by state law.

These rights and remedies arise from the deed of trust, the mortgage deed, applicable statutes, and judicial foreclosure rules, ensuring both parties understand their obligations and protections.

What Should You Know about Loan Terms and Beneficiaries?

A deed of trust often accompanies a promissory note outlining:

• Loan Amount (Principal): Total funds borrowed.

• Interest Rate: Percentage charged on the unpaid balance.

• Loan Term: Duration for repayment.

• Beneficiaries: Usually a bank or mortgage lender.

Loan Amount (Principal): Total funds borrowed.

Interest Rate: Percentage charged on the unpaid balance.

Loan Term: Duration for repayment.

Beneficiaries: Usually a bank or mortgage lender.

If the borrower defaults, beneficiaries instruct the trustee to foreclose and sell. Beneficiaries can be single or multiple entities if the loan has been sold or securitized, complicating estate transactions and foreclosure chains of title.

Conclusion: Why Understanding Deeds of Trust Matters

Whether you are a homeowner considering a property deed loan or a lender structuring a secure loan product, grasping the mechanics of a deed of trust is essential. This instrument defines the roles of borrower, lender, and trustee; sets out foreclosure procedures (judicial and non-judicial); and establishes the rights and remedies available to all parties. By familiarizing yourself with key terms, such as foreclosure, trustee’s sale, and deficiency judgment, you can navigate real estate financing with confidence.

For personalized legal guidance on deeds of trust, foreclosure terms, or estate transactions, visit Surani Associates athttps://suraniassociates.co.nz/ to connect with experiencedImmigration Lawyers andproperty law experts.

Works Cited

“Deed of Trust.” Legal Information Institute, Cornell Law School, law.cornell.edu/wex/deed_of_trust. Accessed 10 June 2025.

“Trust Deed.” Legal Information Institute, Cornell Law School, law.cornell.edu/wex/trust_deed. Accessed 10 June 2025.

“Foreclosure.” Legal Information Institute, Cornell Law School, law.cornell.edu/wex/foreclosure. Accessed 10 June 2025.

“Trust.” Legal Information Institute, Cornell Law School, law.cornell.edu/wex/trust. Accessed 10 June 2025.

“Nev. Admin. Code § 319.320 - ‘Deed of trust’ defined.” Legal Information Institute, Cornell Law School, law.cornell.edu/regulations/nevada/NAC-319-320. Accessed 10 June 2025.

12 U.S. Code § 3752. “Definitions.” U.S. Code, Cornell Law School, law.cornell.edu/uscode/text/12/3752. Accessed 10 June 2025.

Frequently Asked Questions

1. What is a deed of trust, and how does it work?
A deed of trust is a three-party security instrument used in place of a mortgage in many states. The borrower (settlor) conveys legal title to a neutral third party (the trustee) while retaining equitable title and the right to use the property. The trustee holds the title “in trust” for the lender (beneficiary) until the borrower repays the loan. Once the debt is paid in full, the trustee reconveys legal title back to the borrower.

2. How is a deed of trust different from a mortgage?
With a mortgage, the borrower retains legal title and grants the lender a lien against the property. In a deed of trust, legal title transfers to the trustee. If the borrower defaults, a deed of trust typically allows a faster, non-judicial foreclosure via a power-of-sale clause, whereas a mortgage often requires a court-supervised judicial foreclosure.

3. Who are the key parties in a deed of trust?

• Borrower (Settlor/Grantor): Receives the loan and conveys title or lien interest.

• Lender (Beneficiary): Provides the funds and benefits from the security interest.

• Trustee: Holds legal title on behalf of the lender and conducts the foreclosure sale if necessary.

Borrower (Settlor/Grantor): Receives the loan and conveys title or lien interest.

Lender (Beneficiary): Provides the funds and benefits from the security interest.

Trustee: Holds legal title on behalf of the lender and conducts the foreclosure sale if necessary.

4. What is non-judicial foreclosure under a deed of trust?
Non-judicial foreclosure is a streamlined foreclosure process enabled by the power-of-sale clause in a deed of trust. The trustee issues a notice of default, waits the statutorily required period, then auctions the property without court involvement. Proceeds pay off the loan and related costs; any surplus returns to the borrower.

5. What rights do borrowers have during foreclosure?
Borrowers are entitled to:

• Receive timely notices of default and sale.

• Cure the default by paying overdue amounts plus fees during any redemption period.

• Challenge improper foreclosure procedures in court.

Receive timely notices of default and sale.

Cure the default by paying overdue amounts plus fees during any redemption period.

Challenge improper foreclosure procedures in court.

These protections ensure borrowers have clear avenues to protect their interests before losing ownership of their property.