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Define Deed of Trust in Real Estate

Deed of Trust: 

A deed of trust is a special agreement where someone who wants to borrow money for a house lets another person, called a trustee, hold onto the house's legal papers until they pay back the loan. The lender, who gave the money, also benefits from this arrangement because if the borrower doesn't pay back the money, the trustee can sell the house to get the money back.


For example, John wants to buy a house but needs to borrow money from a bank. The bank agrees to lend John the money, but they use a deed of trust. The trustee, let's say Mary, holds the legal papers for the house. John pays the bank every month, and once he's done paying, Mary gives him the legal papers back. If John doesn't pay, Mary can sell the house to pay the bank.

Note: There is a difference between a deed in trust and a deed of trust. While they may sound similar, they are used for different purposes in the world of real estate.

A deed in trust, as we discussed earlier, is an instrument used to transfer real property to a trustee for the benefit of the trustor, who is also the beneficiary. The trustee manages the property on behalf of the trustor.

On the other hand, a deed of trust is a document used in some states to secure a loan on a property. It involves three parties: the borrower (also called the trustor), the lender (also called the beneficiary), and a trustee. In this case, the borrower transfers the legal title of the property to the trustee, who holds it as security for the loan provided by the lender. If the borrower repays the loan as agreed, the trustee releases the property's title back to the borrower. If the borrower fails to repay the loan, the trustee can sell the property to pay off the debt.

So, while both documents involve trust relationships, the purposes and parties involved are different. A deed in trust is about transferring property to a trustee for management purposes, whereas a deed of trust is about securing a loan using property as collateral.

Illustration of Dumb Ox mascot.

"Wit & Whimsy with the Dumb Ox: Unlocking Knowledge with Rhyme:"

In a land where deeds have meaning, two special kinds reside,
A deed in trust and deed of trust, let's take this little ride.
A deed of trust, you see, my friend, is used for loans and debts,
When someone buys a house, but needs a lender's help, and yet.

The borrower, who needs the cash, receives it from the lender,
A trustee holds the house's papers, a neutral third contender.
The deed of trust ensures the lender gets their money back,
If the borrower fails to pay, the trustee takes up the slack.

But a deed in trust, remember well, is different, oh so true,
It's for managing a property, a trustee's job to do.
The trustor and beneficiary, they're one and the same,
They own the property and benefit, in this real estate game.

So, in the land of deeds and trusts, two types are on display,
One for managing property, the other to repay.
A deed in trust and deed of trust, they serve their purpose right,
Helping people navigate, the real estate delight.

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