What is the purpose of a Deed of Trust?

The purpose of a Deed of Trust is to transfer property to a trustee for the benefit of a creditor. In this arrangement, the property serves as collateral for a loan. The borrower (trustor) conveys legal title of the property to the trustee, who holds it on behalf of the lender (beneficiary) until the loan is paid off. This mechanism allows the lender to secure their investment and provides a formal process for the handling of the property in case of default. If the borrower fails to meet the loan obligations, the trustee has the authority to oversee the foreclosure process as per the terms set out in the Deed of Trust.

In this context, other choices do not accurately capture the specific function of a Deed of Trust. While it may seem similar to a mortgage, which also secures a loan with property, a Deed of Trust involves a third-party trustee and a different legal process. Similarly, a Deed of Trust does not directly manage ownership transfer to a new buyer, nor is it primarily aimed at protecting against claims from previous owners. Its unique characteristic lies in facilitating the secured lending process through the involvement of a trustee.