What is a deed of trust and the role of the trustee?

What is a deed of trust and the role of the trustee?

• A. It transfers title to borrower to hold for the lender.
• B. It creates a new mortgage lien.
• C. It transfers title to a trustee to hold for the lender; if borrower defaults, the trustee can initiate non-judicial foreclosure.
• D. It is a warranty deed.

Answer: (C)

A deed of trust uses three parties and security for a loan: the borrower (trustor), the lender (beneficiary), and a neutral third party (trustee). The borrower transfers legal title to the trustee to hold on the lender’s behalf, while the borrower retains equitable ownership and uses the property. If the borrower defaults, the trustee can exercise the deed’s power of sale and initiate a non-judicial foreclosure, meaning the property can be sold without court action to satisfy the debt. Once the loan is paid, the trustee reconveys the title back to the borrower, releasing the lien. This setup explains why the deed of trust is structured with a trustee to hold title for the lender and to foreclose without court involvement.

A deed of trust uses three parties and security for a loan: the borrower (trustor), the lender (beneficiary), and a neutral third party (trustee). The borrower transfers legal title to the trustee to hold on the lender’s behalf, while the borrower retains equitable ownership and uses the property. If the borrower defaults, the trustee can exercise the deed’s power of sale and initiate a non-judicial foreclosure, meaning the property can be sold without court action to satisfy the debt. Once the loan is paid, the trustee reconveys the title back to the borrower, releasing the lien. This setup explains why the deed of trust is structured with a trustee to hold title for the lender and to foreclose without court involvement.