Trust Deed and Trustee's Deed

August 24, 2007

A trust deed (or deed of trust) is the most commonly used document to secure a loan on real property in the state of California. It differs from a mortgage deed in that there are 3 parties, a trustor (borrower), a beneficiary (lender) and a trustee (holder of the legal title to the property). A mortgage deed has 2 parties, a beneficiary (lender) and the borrower.

The trustee holds the legal title in trust for the beneficiary and has the power to sell the property if the trustor (borrower) does not fulfill the obligations that are required under the deed of trust; i.e. make payments in a timely fashion. The trustee also has the power to reconvey the legal title to the trustor if the beneficiary so requests. This request is made when the promissory note underlying the deed of trust is paid in full.

A trustee's deed is a different type of deed. It is issued by the trustee under a deed of trust when a property is sold at a trustee's sale (foreclosure sale on the court house steps). This deed conveys title to the successful bidder but it does not contain any warranties or covenants or guarantees as to any other encumbrances that might exist of record against the property. In other words, I might successfully purchase a foreclosure property at the court house sale and later discover that there are back taxes owed or other liens against the property for which I have now become responsible. What looked like a great deal on the court house steps now turns out to be a financial disaster. Trustee's deeds do give the buyer title, but they absolutely make no guarantees as to the condition of the title.