What is a deed of trust?

Question

What will be an ideal response?

Answer 1

There are three parties to a deed of trust: (1) the owner of the property who borrows the money, (2) the trustee who holds legal title to the property put up as security, and (3) the lender who is the beneficiary of the trust. The purpose of the deed of trust is to make it easy for the security to be liquidated. However, most states treat the deed of trust like a mortgage by giving the borrower a relatively long period of time to redeem the property, thereby defeating this rationale for the arrangement. In a deed of trust transaction, the borrower deeds to the trustee the property that is to be put up as a security. The trust agreement usually gives the trustee the right to foreclose or sell the property if the borrower fails to make a required payment on the debt. Normally, the trustee does not sell the property until the lender notifies him that the borrower is in default and demands that the property be sold. The trustee then sells the property, usually at a public sale. The proceeds are applied to the costs of the foreclosure, interest, and debt. If there is a surplus, it is paid to the borrower. If there is a deficiency, the lender has to sue the borrower on the debt and recover judgment.