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Simple English definitions for legal terms
deed of trust
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A quick definition of deed of trust:
A deed of trust is a way to borrow money to buy a house. It involves three people: the person lending the money, the person borrowing the money, and a third person who holds onto the house as security. If the person borrowing the money can't pay it back, the third person can take control of the house and sell it to get the money back. This is called a foreclosure. The third person is usually a title company.
A more thorough explanation:
A deed of trust is a legal document used in some states to secure a real estate transaction. It involves three parties: a lender, a borrower, and a trustee. The lender gives the borrower money, and in exchange, the borrower gives the lender one or more promissory notes. As security for the promissory notes, the borrower transfers a real property interest to a third-party trustee. If the borrower defaults on the loan, the trustee may take control of the property to correct the borrower's default.
For example, when a person buys a home with a loan from a bank, the bank becomes the lender, and the borrower is the person buying the home. The trustee is usually a title company. The borrower makes monthly payments to the bank, and if they fail to make payments, the title company can initiate a non-judicial foreclosure as the bank's agent.
Deeds of trust usually include a power-of-sale clause, which allows the trustee to sell the property without first getting a court order. This is called a non-judicial foreclosure.
Overall, a deed of trust is a way to secure a real estate transaction and protect the lender's investment in case the borrower defaults on the loan.