What’s a deed of trust and how does it differ from a mortgage?

When you’re exploring home financing options, you’ll likely encounter terms that sound similar but mean different things. A deed of trust, for instance, is often confused with a mortgage — but the two work differently when it comes to how lenders protect their interest in the property.

This type of agreement is one of several legal tools used in home financing. While it serves a similar purpose to a mortgage, the process and parties involved can vary depending on the property’s location.

Below, we’ll cover what a deed of trust is and how its unique structure influences the lending process so you can weigh your financing options with confidence.

What’s a deed of trust, and how does it work?

A deed of trust is a legally binding arrangement used in some real estate transactions to secure a home loan. While similar to a mortgage, it adds a third party — the trustee — who keeps the property’s title as security until the borrower repays the loan in full. If payments stop for any reason, the trustee can sell the home through a nonjudicial foreclosure. 

State law usually determines whether a property uses a deed of trust or a mortgage. In states that allow both, the lender typically decides and often opts for a deed of trust since it’s a faster and less expensive process.

Who are the parties involved in a deed of trust?

Every deed of trust involves three parties:

— The borrower: Also called the trustor, the borrower is the party securing funding for a real estate purchase.

— The lender: The lender, sometimes referred to as the beneficiary, provides the borrower with the funds.

— The trustee: The neutral third party, called the trustee, holds onto the property's legal title until the borrower pays the loan or ends up defaulting.

What information does a deed of trust include?

Deeds of trust outline all the important details of the loan agreement, including:

— The loan amount

— A description of the property

— The names of the borrower, lender, and trustee

— The start and maturity dates of the loan

— Fees, such as closing costs

— What happens if the borrower defaults

— Riders and addenda, which provide information specific to the deal, like unusual features of the property or loan terms

...in as little as 3 minutes – no credit impact

What to expect during the deed of trust process

The underlying process for most loan types is similar. First, the borrower signs a promissory note — a legal commitment to repay the loan under agreed-upon terms. This step exists for both deeds of trust and mortgages.

Next, the lender must protect their investment in case the borrower defaults on the loan. In real estate, that means the property itself serves as collateral. To give this legal force, lenders place a lien on the home. A lien is a claim that lets the lender take ownership of the property if the borrower breaks the loan agreement.

A deed of trust also creates a lien, but adds another layer of security by transferring the property’s legal title to a third-party trustee. The trustee retains the title until the borrower pays off the loan or defaults. This setup differs from a typical grantor-grantee relationship, where ownership passes directly from one party to another.

What happens when the borrower pays off the deed?

Once the borrower makes the last payment, they’ve met all the obligations laid out in the promissory note, and it’s finally stamped “Paid in Full.” The trustee issues a deed of reconveyance, which transfers the title to the borrower — now a full-fledged homeowner — and releases the lien on the property.

What happens if the borrower defaults?

If the borrower can’t pay back a loan, foreclosure begins. With a mortgage, the process generally requires the lender to file a lawsuit and obtain court approval before selling the property. This is known as judicial foreclosure, and it can take months or even years, depending on the state’s legal system. 

The deed of trust on a property, on the other hand, allows for nonjudicial foreclosure. This means the lender can skip the courts since the trustee has the authority to sell the property. The process typically moves faster and is more affordable, but it can also give the borrower less time to contest the sale.

What’s the difference between a mortgage and a deed of trust?

With so many similarities, it’s natural to wonder, “Is a deed of trust the same as a mortgage?” While they differ in structure, there’s some common ground. Here are the key points of deeds of trust versus mortgages.

Core similarities

— Loan security: Mortgages and deeds of trust have the same fundamental purpose — securing the lender’s interest in the property until the borrower fully repays the loan.

— Home as collateral: Mortgages and trust deeds both put your property up as collateral. This means that the lender (or trustee) can reclaim the home if you can’t make all the payments.

— State regulation: States regulate real estate lending practices, including whether deeds of trust are allowed and how they operate.

Core differences

— Parties involved: A mortgage agreement has just two parties (the lender and the borrower). Deeds of trust add a trustee into the mix.

— Foreclosure process: Mortgages require judicial foreclosure, meaning the lender must obtain court approval to sell the property after default. With deeds of trust, lenders can sidestep the courts because the trustee can manage the sale on their behalf.

— Geographic availability: Mortgages are available across the country, while deeds of trust are a bit more limited. Some states, including Washington, Texas, and Colorado, don’t recognize deeds of trust at all.

...in as little as 3 minutes – no credit impact

Pros and cons of deeds of trust

Trust deeds and mortgages each have their benefits and drawbacks. Some features are better for the lender, and some favor the borrower. Here’s a summary of the most impactful.

Keep homebuying simple with Better

Whether it’s a traditional mortgage or a deed of trust, understanding the ins and outs of financing a home loan helps you make more confident, informed buying decisions.

Better takes this confidence one step further by connecting you with industry-leading real estate agents who help you secure the best deal on your home and mortgage. Once you’re ready to close, you can get pre-approved in as little as three minutes, with funds in your account within a week.

Partner with Better for a homebuying experience that’s fast, simple, and affordable.

...in as little as 3 minutes – no credit impact

FAQ

What’s a deed of trust on a property?

A deed of trust is a legal setup in real estate in which a borrower and a lender agree to entrust title management to a neutral third party until the borrower pays off or defaults on the loan.

Can you sell a property that has a deed of trust?

Yes, just like a mortgage, you can still sell your home even if you haven’t paid back the full loan balance yet. The proceeds of the sale will go to the lender first, and you’ll net the difference.

Is a deed of trust a public record?

Yes. The county recorder’s office files deeds of trust and adds them to the public record.

What’s the difference between a promissory note and a deed of trust?

A promissory note is a document that the borrower signs, pledging to repay the lender in accordance with the agreed terms. It includes information like the loan amount, interest rate, and repayment terms.

The deed of trust secures the loan by allowing the trustee to sell the property on the borrower’s behalf if they don’t satisfy the loan terms. It’s what gives the promissory note its legal backing and enforceability.