What Is a Deed of Trust? How Does It Work?
A Deed of Trust is an important document used in real estate transactions. It is a three-way agreement between a borrower, lender, and trustee that outlines the legal terms of a loan or mortgage. The trust deed secures the property as collateral for the loan and specifies the conditions under which it can be forfeited if payments are not made on time.
The borrower transfers ownership of their property to a neutral third-party trustee who holds the deed until such time as it can be released when all loan payments have been made and all other conditions met. In most cases, this will be when the full principal amount has been paid back to the lender, plus any agreed interest or fees associated with it. While this process is underway, however, both parties will benefit from protection from possible foreclosure proceedings or other legal action should one party default on their obligations under the agreement.
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