A deed of trust is an agreement formed between a buyer of real estate, a lender financing the purchase, and a neutral third party called the trustee. The deed of trust acts as security for the promissory note, which is a form that establishes the borrower’s obligation to pay back the full amount lent.

Should the borrower default on the loan, the trustee (who holds onto the title) will have the right to sell the property in order to clear the default. It’s the addition of the trustee that separates a deed of trust from a mortgage, which traditionally only involves the lender and buyer. Deed of trusts are currently permitted in thirty (30) states.

By State (34)

• Alabama
• Alaska
• Arizona
• Arkansas
• California
• Colorado
• Georgia
• Hawaii
• Idaho
• Maine
• Maryland
• Massachusetts
• Michigan
• Minnesota
• Mississippi
• Missouri
• Montana
• Nebraska
• Nevada
• New Hampshire
• New Mexico
• North Carolina
• Oklahoma
• Oregon
• Rhode Island
• South Dakota
• Tennessee
• Texas
• Utah
• Vermont
• Virginia
• Washington
• West Virginia
• Wyoming

What is a Deed of Trust?

A deed of trust, also known as a “trust deed”, is an agreement in which a lender and a borrower agree to have a trustee hold onto the title until the loan is paid off. The deed of trust acts as collateral/security for the promissory note(s) signed between the parties.

The “trust” part of the deed refers to the fact the legal title to the property is kept by the trustee, who only releases the title to the borrower once the loan is paid for.

Who can act as the Trustee?

While some states have requirements for who can act as a trustee, the trustee is commonly:

• A title insurance company
• An entity (such as an LLC)
• An attorney
• A financial institution (e.g., a savings bank or credit union)

Depending on the agreement between the lender and borrower, both may have the privilege of choosing the trustee together, or the lender may reserve the full right to choose a trustee on their own.

Deed of Trust vs. Mortgage

While both deeds of trusts and mortgages are used for lending, they have a few key differences, which include:

• Foreclosure process – With a mortgage, the lender has to file a lawsuit on the homeowner after default occurs. What follows is a long, drawn-out judicial process that can take over a year to resolve (if not more). With a deed of trust, the process is significantly faster (and cheaper), as it only involves the requirements set out in the deed of trust form and the state’s statutes. See the “Power of Sale” clause below for more information.
• Number of parties – Mortgages only involve the borrower and the lender. Deed of trusts, on the other hand, involve the borrower, the lender, and the trustee.

Power of Sale Clause

Deed of trust forms contain an essential provision known as the “power of sale” clause. This clause allows the lender to go through a non-judicial foreclosure should the borrower default on the loan. Without the clause, the lender would need to go through court proceedings to take possession of the property, which is standard for mortgage agreements. Whether a state permits power of sale clauses to be used is what determines whether a deed of trust can be used.

Deed of Trust Laws

The following are the state statutes pertaining to deed of trust and/or power of sale for each state. If a state shows “N/A”, power of sale foreclosures are not offered in the state.