Real property

A deed of trust is a legal document that transfers ownership of real property (real estate) to a trustee until the person or entity buying the real property repays a loan for the purchase of the real property. A deed of trust is similar to a mortgage—some states use a mortgage and other states use a deed of trust.

In a deed of trust transaction a lender (the bank) gives a borrower (who is purchasing the real property) money to pay the seller, and the borrower gives the lender one or more promissory notes for repayment of the loan. As security for the promissory notes, the borrower transfers the ownership interest (title) in the real property to a trustee—often a title company—to hold until the borrower repays the lender.

If the borrower fails to timely make payments and defaults on the loan, the property generally may be sold without the lender using or going through the court system. This is known as nonjudicial foreclosure and is usually less time-consuming and less expensive for the lender.

A deed of trust is also known as a trust deed, a trust indenture, an indemnity mortgage, or a common-law mortgage.

In Texas, a deed of trust is commonly used in real estate transactions as a method of securing a loan. When a borrower purchases real property, they may sign a deed of trust, which involves three parties: the borrower (trustor), the lender (beneficiary), and the trustee, who is typically a title company. The trustee holds the legal title to the property as security for the repayment of the loan to the lender. The borrower retains equitable title and the right to use and enjoy the property during the loan period. If the borrower defaults on the loan, the trustee has the authority to sell the property through a nonjudicial foreclosure process, which is faster and less costly than judicial foreclosure because it does not require court intervention. This process is governed by Texas state statutes, specifically the Texas Property Code, which outlines the requirements for executing a deed of trust and the procedures for foreclosure.