A deed of trust is a transfer of interest in land by a mortgagor-borrower to a mortgagee-lender to secure the payment of the borrower’s debt. A deed of trust is an arrangement among three parties: the borrower, the lender, and an impartial trustee which is an entity that holds “bare or legal” title. The borrower transfers legal title to real property to the trustee who holds it as security for the loan. The borrower retains equitable title to, and possession of, the property. The trust deed is recorded with the County Recorder where the property is located as evidence of and security for the debt.
When the loan is fully paid, the monetary claim on the title is transferred to the borrower by reconveyance to release the debt obligation. If the borrower defaults in the payment of the debt, the trustee has the right to sell the property and pay the lender, the proceeds to satisfy the debt. The trustee will return surplus amount, if any, to the borrower.
The right of the trustee to sell the premises is called foreclosure by power of sale. A foreclosure by power of sale is neither supervised nor confirmed by a court. The procedure for a foreclosure by power of sale is regulated by statute. All interested parties must be given notice of the sale, which must be published in local newspapers, usually in the public notice columns, for a certain period of time as required by statute. The sale is usually open to the public to ensure that the property will be sold at its fair market value.
Trust deeds are the the most common instrument used in the financing of real estate purchases in Alaska, Arizona, California, Colorado, Idaho, Illinois, Mississippi, Missouri, Montana, New Mexico, North Crolina, Texas, Virginia and West Virginia.