Which type of deed is commonly used in real estate transactions that involve a loan?

In real estate transactions that involve a loan, a Deed of Trust is commonly used because it serves a specific purpose in securing a loan by creating a lien on the property. In a Deed of Trust, the borrower (trustor) transfers the legal title of the property to a third party (trustee) as security for the repayment of the loan to the lender (beneficiary). This arrangement provides the lender with a security interest in the property, ensuring they have a claim to the property if the borrower defaults on the loan.

This type of deed is typically used in many states as an alternative to a mortgage since it can streamline the process of foreclosure if necessary. If the borrower fails to meet their repayment obligations, the lender can instruct the trustee to initiate a foreclosure process, making it an effective tool for protecting the lender’s interests in, and recourse to, the property.

Understanding the role of a Deed of Trust in real estate financing helps clarify its importance in transactions involving loans, distinguishing it from other types of deeds that do not provide the same level of security for the lender. Other deeds, while they have their unique functions, do not secure a loan in the way a Deed of Trust does.