What does a deed of trust establish?

A deed of trust is a legal instrument that serves to create a secured interest in real property. When a borrower (the trustor) takes out a loan, the borrower gives a deed of trust to a third party (the trustee), who holds the legal title to the property until the loan is paid off. The beneficiary of the deed of trust is typically the lender, who has a security interest in the property.

The essential function of a deed of trust is to provide security for the lender in case the borrower defaults on the loan. If the borrower fails to repay the loan, the trustee can initiate foreclosure proceedings to sell the property and recover the owed amount for the lender. This arrangement allows the lender to have a claim to the property through the trustee without taking direct ownership, ensuring that their investment is safeguarded by a legal interest in the collateral property.

While other options may reference aspects of property law, they do not accurately capture what a deed of trust specifically establishes in the lending process. The correct understanding and application of a deed of trust are crucial for parties involved in real estate and lending transactions, as it outlines the rights and obligations of all parties involved in the secured financing arrangement.