A trust deed is a type of mortgage.  In this type of mortgage, the lender is referred to as the beneficiary, the home buyer is the trustor and a third party that secures the transaction is the trustee, hence the name “trust deed.” Having a third neutral party (the trustee) hold the title helps protect the beneficiary – or the lender -- until the loan is completely paid off.  The trust deed is not practiced in all states but it is used in the United States. It’s a good idea to ask your banker or lender how your loan will be handled. Ask if it will be set up on a trust deed system.

While most lenders may not refer to it as a trust deed, many mortgages are based on the very same principles. You go to your local bank and complete a loan application to buy a new house. Once you get to the closing table, you learn that you will not make your payment to the local bank, but instead to a trustee organization that probably won’t even be in the same town. Your local bank has sold your loan to another company. They got the loan then sold it so they are no longer stuck with the property if you don’t pay it back. A trust deed situation works the same way.

If you are buying property through a trust deed, you will sign a promissory note saying that you will pay the loan back, and the trust deed promising to take care of the property, pay taxes on it, maintain required insurance and pay for all renovations and improvements to it. So, a trust deed is not much different from a regular old home loan.

As with a typical home loan, a trust deed requires an appraisal of the current market value of the home and property. You’ll also have to pay for a title search policy to insure that there are no other liens against the property. If the title search turns up other liens against the property, they will have to be paid off before the property can be sold or the payment for it will have to come off the top of the sale price of the property.

Can your home be foreclosed upon if it’s bought through the trust deed procedure? You bet! Don’t think that calling it something other than a mortgage or home loan means that your trust deed home purchasing plan is any different from any other loan you agree to pay back and pay back on time. A trust deed is just as legal a document as any other paper you would normally sell when closing a deal on a home. By involving the third party, the neutral trust deed holder, you’re actually setting yourself up to be accountable to two groups of people: the beneficiary and the deed holder or beneficiary. That’s the difference in your lender selling the mortgage to a third party instead of setting up a trust deed situation.  A trust deed purchase is not a bad one, just know going into it that breaking its consequences are a little bit more substantial than having an occasional late mortgage payment.