Trust Deed: What it Is and How it Works
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Trust deeds are sometimes used instead of mortgages to secure a loan against the property in some states. In other states, trust deeds are used in conjunction with a mortgage loan. They offer lenders protection to take swift legal action if the home loan defaults. It’s essential to have the correct language in place to serve this document’s intended purpose.
In this article, we examine what to know about drafting and using trust deeds:
What is a Trust Deed?
A trust deed, also known as deeds of trust, is a real estate agreement between a borrower and a lender when transferring a property’s title to a trustee for purposes of future ownership. The trustee holds the legal title on behalf of the lender, but the borrower retains ownership and possession of the property. Trust deeds are usually signed alongside loan documents outlining repayment terms while guaranteeing ownership upon satisfactory repayment. Some states use trust deeds as a type of security instrument along with a mortgage loan. Furthermore, some states use trust deeds instead of mortgages to secure the loan against the property.
Ordinarily, trust deeds will record the following information:
- Consideration for the home’s purchase
- Amount of money held in trust
- Force of sale rights
- Foreclosure procedures
Also, they can describe the home purchase details and the owner’s intention regarding the trust. For more information, this web page also defines trust deeds.
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How do Trust Deeds work?
Trust deeds work by providing a real estate transaction lender with legal protections. However, the protection varies from state to state. Typically, the borrower must sign a promissory note for a trust deed to become effective. Promissory notes are legal contracts signed by the trustor and signify an agreement to repay a home loan while detailing the loan’s terms and conditions.
These are primarily the three parties involved in trust deeds:
- Beneficiaries: Lenders are the beneficiaries. They are beneficiaries since the established trust seeks to protect their interests. Of the three parties, investors or lenders have the most to lose in real estate transactions, and a trust deed provides reassurance.
- Trustees: Third-party trustees hold the property ownership title until the home loan is paid in full. A title insurance company or bank usually fulfills this role. Lenders facilitate this relationship and often have authority over selecting the party. Trustees must stay impartial throughout the transaction.
- Trustors: Borrowers are designated as trustees. They can legally retain this designation as long as they meet the terms and conditions contained within the promissory note. This payment consistency gives them an equitable title, meaning that they claim equity while making loan payments.
The trustee is generally the party that prepares the trust deeds, promissory notes, and other documentation involved in a real estate transaction.
Example of How Trust Deeds Work
More than twenty states require the use of trust deeds versus mortgages. If you live in one of these states, it’s critical to understand the transaction clearly when investing, buying, or selling property. Each state follows various procedures and laws, which means that you should first determine which ones apply to your trust deeds.
Let’s solidify our understanding of how trust deeds work with a concrete example:
- Jack, a prospective borrower, wants to buy a home
- Jack visits his banker to apply for a home loan
- His bank, Horizon Financial, approves Jack
- Horizon Financial drafts a trust deed as a beneficiary
- They also prepare a promissory note to set the terms of the loan
- Horizon Financial names First Title & Trust as the trustee
- Jack agrees to the loan’s terms and signs as the trustor
- Jack repays the loan after 15 years
- Horizon Financial informs First Title & Trust of term completion
- First Title & Trust initiates the trust deed transfer process
- First Title & Trust presents Jack a quitclaim or warranty deed
- First Title & Trust is the grantor during the transfer
- Jack signs the documents as the grantee
- Jack now owns the property outright
All parties must follow the terms of the loan documents explicitly to avoid legal issues. Poorly drafted documents can also create unwanted problems, so it’s a good idea to seek legal advice during the legal drafting phase from a real estate lawyer. They can also give you valuable advice regarding situations they represented in the past to make the process more efficient for you.
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Purpose of a Trust Deed
The purpose of a trust deed is to protect the beneficiary lender if the borrower does not repay the home loan. In the event of default, the trust deed gives the lender authority to resell the home and pay off the debt. The level of protection for the lender depends on the laws and regulations of the state where the trust deed is executed. Trust deeds create a lien on the property in favor of the lender once the trust deed or mortgage is created. The trust deed needs to be registered with the county clerk & recorder’s office.
The clerk will notify the lender that they have a record of their security interests on file. If more than one lender funded the home loan, then they receive repayment from a lien based on the order in which it was recorded.
Difference between a Mortgage and Trust Deed
Trust deeds are similar to traditional mortgages, but they are also two very different documents with exclusive legal implications. The most significant differences between a mortgage and trust deed include party designations, default loan terms, redemption rights, availability, contract types, securities backing, cost,
Let’s take a much closer look at each of the differences between mortgages and trust deeds:
Difference 1. Party Designations
Mortgages utilize the terms mortgagors and mortgagees, when referring to lenders and borrowers, respectively. In contrast, trust deeds name three parties, including trustors, trustees, and beneficiaries. Title companies typically serve as trustees, while lenders function as beneficiaries and borrowers as trustors.
Difference 2. Default Loan Terms
Each type of real estate transaction enacts a unique foreclosure procedure. Typically, trust deeds utilize a non-judicial foreclosure process, whereas a mortgage follows a judicial foreclosure process. As such, lenders must obtain a formal court order before they can foreclose on one’s home.
Difference 3. Redemption Rights
If a foreclosure procedure occurs, a property auction is a final step in remedying a defaulted loan. Generally, borrowers have ample opportunity to save the house, but it cannot be repurchased once sold. On the other hand, mortgages recognize a redemption period, which means that borrowers could reclaim their property within several months or years.
Difference 4. Availability
There are more than thirty states that permit the use of trust deeds. Some of these states enable the use of both trust deeds and mortgages. Speak with real estate lawyers in your state to determine which laws apply to your specific situation.
Difference 5. Contracts Types
The types of repayment contracts also differ when it comes to mortgages vs. trust deeds. Trust deeds utilize promissory notes to facilitate the transaction. In contrast, lenders offer mortgage notes to manage it.
Difference 6. Securities Backing
People erroneously refer to all home loans like mortgages. However, a mortgage is only genuine when a mortgage note backs it. Trust deeds are the legal instruments that support a non-mortgage home loan.
Difference 7. Cost
Due to a lender’s responsibility to seek judicial foreclosure, mortgages often utilize more resources than trust deeds. Consequently, mortgagors favor trust deeds in states that permit them. They will always spend less money, time, and attention on trust deeds over mortgages.
Get Help With A Trust Deed
Whether you’re investing in a property or lending to a prospective buyer, it’s critical to get legal help when working with trust deeds. These transactions are significant, and vulnerable parties need to protect their financial interests. Real estate lawyers in your state can offer legal advice and guidance throughout the drafting or negotiating process. Post a project in ContractsCounsel’s marketplace to get free bids from vetted lawyers.
ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.
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Alton H.
I am a U.S.-licensed attorney with more than a decade of experience in complex litigation and intellectual property matters. I have practiced at leading Am Law firms including Pillsbury Winthrop Shaw Pittman, Arent Fox, and Sughrue Mion, and I currently operate my own law practice. I have extensive experience handling high-stakes patent litigation, drafting pleadings and briefs, managing large-scale discovery, preparing and defending depositions, and appearing before federal courts and administrative bodies such as the PTAB and ITC. I hold a J.D., cum laude, from The George Washington University Law School and advanced technical degrees in chemistry and chemical engineering, which allow me to efficiently handle technically complex matters. I am admitted in multiple jurisdictions, including New York, Virginia, New Jersey, and the District of Columbia, and I regularly provide high-quality remote legal support to clients nationwide.
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Allen L.
Clear, strategic legal guidance when you need it most—whether you're planning ahead or defending a position. Legal challenges shouldn't feel confusing or overwhelming. Whether you're building an estate plan, structuring a business, or navigating a dispute, my practice is built on clarity, care, and practical strategy. I work with clients who want real solutions—not just paperwork—through planning and advice that truly fits their goals, families, and businesses. Planning & Structure I focus on estate planning, asset protection, and business succession, helping individuals and entrepreneurs organize their assets, reduce risk, and prepare for every stage of life. Whether you're setting up your first living trust, shielding your business from liability, or updating an existing estate plan, you'll receive clear guidance, fixed-fee pricing, and responsive support from start to finish. Each plan I design is tailored to your real-world priorities: preserving wealth, avoiding unnecessary taxes and probate, and ensuring the people you love are protected when it matters most. I also focus on general business matters outlined below. Disputes & Defense When legal conflicts arise—disputed contracts, demand letters, settlement negotiations, or litigation decisions—I provide realistic risk assessment and strategic guidance. I help clients understand their actual exposure (not just best-case scenarios), identify leverage points, and navigate toward efficient resolution. If you're facing a legal claim or need to evaluate your position before responding, I can walk you through the realistic options and their costs. Services: Estate Planning & Asset Protection --Simple wills and powers of attorney --Living trusts for small estates --Buy-sell agreements for family businesses Business Formation & Agreements --LLC or S-Corp formation filings --Operating Agreements / Shareholder Agreements --Founder or Investor Agreements --Bylaws and Minutes templates --Registered agent setup guidance Contracts & Commercial Matters --Service Agreements (consulting, marketing, software, design, etc.) --Independent Contractor Agreements --Employment contracts and offer letters --Non-compete, non-solicitation, or confidentiality agreements --Employee handbooks or HR policy updates --Termination or severance agreements --NDAs (Non-Disclosure Agreements) --Partnership or Joint Venture Agreements --Sales or Vendor Contracts --Licensing or IP Agreements Terms and conditions SaaS Platforms --Terms of Service --Privacy Policy --Independent Contractor Agreements --Customer/User Agreements --Liability Waivers --Cancellation & Refund Policy --Non-Solicitation Clauses --Marketplace compliance documents Real Estate --Commercial lease drafting or review --Residential lease review --Purchase & sale agreements --Short-term rental (Airbnb) contracts --Property management agreements Professional Approach: I leverage modern legal research and writing technologies—including AI-assisted tools—to enhance the quality, speed, and clarity of my analysis. Like many legal professionals today, I use these tools to organize research, improve communication, and catch errors. On research tools: case law and statutory verification runs through a vLex/Fastcase subscription, and drafting and first-pass review is AI-assisted. Every analysis I provide is thoroughly reviewed and reflects my independent professional judgment as a licensed attorney. AI is a tool that supports my work; it does not replace it.
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Michelle T.
I am an experienced, well-rounded attorney with a background specializing in trusts and estates, contracts and business law. I have extensive experience working with simple contracts all the way up to multi-million dollar deals.
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With over eleven years of intellectual property experience, I’m happy to work on your contract problem. I am very diligent and enjoy meeting tight deadlines. Drafting memoranda, business transactional documents, termination notices, demand letters, licenses and letter agreements are all in my wheelhouse! Working in a variety of fields, from construction to pharmaceutical, I enjoy resolving any disputes that come across my desk. I will prioritize your project, big or small. Please be ready and prepared with all relevant documentation so we can get started as soon as you click HIRE! Hourly rate projects will be billed hourly in accordance with the timesheet. Flat rate projects will be billed in segments. Choosing an hourly or flat rate is up to you. Absolutely no refunds.
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Max K.
I am a business attorney and former in-house corporate attorney with more than a decade of experience helping companies navigate contracts, commercial relationships, day-to-day operations, and disputes. My practice includes drafting, reviewing, and negotiating commercial agreements, licenses, leases, vendor and service agreements, and other business arrangements. Licensed in Nevada, California, New York, and Texas, I also hold an Executive MBA. My goal is to serve as practical, long-term outside counsel to small businesses and entrepreneurs that value responsiveness, sound judgment, and advice grounded in commercial realities - not merely technical legal answers. I handle disputes when necessary, but much of the value I bring lies in identifying issues early, preserving business relationships, and preventing avoidable conflicts. I do not bill separately for routine phone calls. I want clients to feel comfortable calling before a small concern becomes an expensive problem, and I am always happy to have an initial conversation to see if the fit is right for you. www.linkedin.com/in/maxkelner
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Jordan P.
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Can a trust deed be revoked or modified after it has been established?
I recently inherited a property that was placed in a trust deed by my late father, who named me as the beneficiary. The trust deed was established several years ago and outlines specific conditions for the distribution of the property. However, I am now considering making some changes to the property, such as adding an additional structure or dividing it into separate lots. I am wondering if it is possible to revoke or modify the trust deed to accommodate these changes, or if I am bound by its original terms.
Dolan W.
Hello! My name is Dolan and I'm happy to answer your question. If your father placed the property into trust and has passed, it's important to look at the trust terms to see if the trustee has any authority to transfer the property over to you. If there is no authority for that, then you have to determine whether the property requires the trustee to approve modifications or if your dad gave you the right to make these improvements yourself. Nevertheless, when a person dies, the trust becomes irrevocable, so modifications or revocations are not permitted. Revocations are allowed if something happens like you die and there is no backup beneficiary or if the property is condemned by the state,for example. Otherwise, you have to look at the trust terms and/or speak to the trustee. We can always review these things for you here on the site. Thanks again!
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