What is a deed of trust?

A deed of trust is a crucial legal document in real estate transactions that serves to secure a loan by providing the lender with a claim against the property in question. This means that the borrower, or trustor, conveys an interest in the property to a third party, known as the trustee, who holds the title for the benefit of the lender, or beneficiary. This arrangement helps protect the lender’s investment by ensuring that, if the borrower defaults on the loan, the lender can initiate a foreclosure process on the property, allowing them to recover any losses.

In contrast, the other options describe different elements of real estate transactions but do not accurately define a deed of trust. For example, a contract allowing a buyer to purchase a home with no down payment relates to financing options, while a document confirming the sale price pertains to the closing process. A reciprocal agreement between buyers and sellers does not specifically address the security of a loan against property, which is the primary function of a deed of trust. Thus, understanding the role of a deed of trust is essential for both borrowers and lenders in the mortgage industry.