What is a deed of trust?

A deed of trust is a legal instrument that establishes a fiduciary relationship among three parties: the borrower, the lender, and a trustee. In this arrangement, the borrower conveys the legal title of the property to the trustee, who holds it as security for the loan until the borrower repays the lender. This framework provides a mechanism for the lender to secure their interest in the property while allowing the borrower to maintain equitable title and use of the property.

This understanding is crucial because it highlights the distinction between a deed of trust and other financial instruments, such as a mortgage, where typically only the borrower and lender are involved. The presence of the trustee in a deed of trust is significant as it can help facilitate the foreclosure process should the borrower default, providing a clearer path to reclaiming the property for the lender.

Other options do not encapsulate the complete role and dynamics of a deed of trust. For instance, simply indicating an agreement solely between a lender and a borrower overlooks the essential role that the trustee plays. Similarly, stating it solely as a legal document allowing a lender to take possession misses the broader relationship context. Lastly, a deed of trust is not defined by restrictions against refinancing, making the mention of a prohibition on refinancing irrelevant in this context.