Deed of Trust

A Deed of Trust in the United States establishes a trust, transferring property to a trustee who administers it according to its stated terms.

The Deed of Trust is used primarily in California, Texas, Virginia, North Carolina, Colorado, Arizona, Nevada, Washington, Oregon, Idaho, Montana, and approximately 20 other states that permit non-judicial foreclosure. The distinction between deed-of-trust states and mortgage states determines the speed and cost of the foreclosure process — a critical economic factor for mortgage lenders and borrowers alike. In California, the non-judicial trustee's sale process under Civil Code § 2924 et seq. can proceed in as few as 111 days from the recording of the Notice of Default. In New York — a mortgage state with judicial foreclosure — the same process can take 2 to 4 years under CPLR Article 13.

The Deed of Trust is distinct from a Mortgage but serves the same economic function: providing the lender with a security interest in real property that can be enforced if the borrower defaults. The Deed of Trust references and is secured by a separately executed Promissory Note that contains the borrower's promise to repay the loan. Together, the Deed of Trust and the Promissory Note constitute the complete loan documentation for a real estate-secured transaction. Additional documents — a Loan Agreement, Assignment of Rents, Environmental Indemnity Agreement, and Guaranty — are typically required for commercial real estate loans from institutional lenders including Wells Fargo, JPMorgan Chase, Bank of America, and other major US lenders.

Fannie Mae and Freddie Mac — the government-sponsored enterprises that purchase and securitize the majority of US residential mortgage loans — publish standardized Uniform Instruments for Deeds of Trust and Mortgages in each state where these instruments are used. Lenders who sell loans to Fannie Mae or Freddie Mac are required to use these Uniform Instruments or instruments that meet Fannie Mae/Freddie Mac requirements. The standard Fannie Mae/Freddie Mac Deed of Trust (Form 3005 for California, Form 3044 for Texas, and state-specific forms for all other states) is the most widely used real estate security instrument in the United States, used in millions of residential purchase and refinance transactions annually.

The Deed of Trust must be recorded in the official records of the county in which the property is located — the county recorder's office (or register of deeds) — to be effective against third parties and to establish the lender's priority lien on the property. Recording requires the instrument to be properly acknowledged before a notary public or other officer authorized to take acknowledgments, and payment of county recording fees. Most states also require payment of a mortgage tax or documentary stamp tax on the loan amount at the time of recording.

A US Deed of Trust is needed in deed-of-trust states whenever real property is used as collateral to secure a loan — whether a residential mortgage, a commercial real estate loan, a construction loan, a home equity line of credit, or a private party real estate loan.

For residential home purchases, a Deed of Trust is required by virtually every institutional lender originating purchase money loans in California, Texas, Virginia, Colorado, Arizona, Nevada, Washington, North Carolina, and other deed-of-trust states. The Deed of Trust is recorded at closing simultaneously with the Grant Deed (or Warranty Deed) conveying ownership from the seller to the buyer. Fannie Mae and Freddie Mac conforming loan guidelines — governing loans up to the conforming loan limit of $766,550 for single-family properties in most US markets in 2024 (higher in designated high-cost areas) — require the use of state-specific Uniform Instrument Deeds of Trust.

For refinance transactions, the existing Deed of Trust securing the prior loan must be reconveyed (by recording a Deed of Reconveyance or Full Reconveyance) simultaneously with the recording of the new Deed of Trust securing the refinance loan. Title insurance companies — including Fidelity National Title, First American Title, Old Republic Title, and Stewart Title — require confirmation of the reconveyance as a condition of insuring the new lender's title.

For commercial real estate loans — including office buildings, retail centers, industrial properties, multifamily apartment complexes, and hotels — a Deed of Trust (often called a Deed of Trust, Assignment of Rents and Leases, and Security Agreement in commercial practice) is the standard security instrument in deed-of-trust states. Commercial Deeds of Trust include additional provisions not found in residential instruments: assignments of all leases and rents, environmental representations and indemnities, UCC fixture filings for personal property attached to the real property, and cash management provisions.

For private party real estate loans — seller-financed purchase transactions, family loans secured by real property, and hard money loans from private lenders in California, Texas, Arizona, and Nevada — a Deed of Trust is the appropriate security instrument regardless of loan size. Recording the Deed of Trust is essential for private party lenders because an unrecorded Deed of Trust is vulnerable to being extinguished by a subsequent purchaser or lender who records without actual notice of the prior unrecorded instrument, under the state's recording acts.

Home equity lines of credit (HELOCs) and home equity loans in deed-of-trust states use Deeds of Trust as subordinate security instruments — typically in second position behind the first mortgage or Deed of Trust securing the original purchase money loan.

A properly prepared US Deed of Trust must contain specific provisions required by state law, Fannie Mae/Freddie Mac guidelines (for conforming residential loans), and standard commercial lending practice. The following elements are essential.

The parties section identifies the trustor (borrower), the trustee, and the beneficiary (lender) by full legal name. The trustee in most institutional Deeds of Trust is a title company or trust company designated by the lender — for example, in California, trustees include First American Title Insurance Company, Chicago Title Company, and Fidelity National Title. In Texas, the trustee must be a resident of Texas or an entity authorized to do business in Texas under Texas Property Code § 51.0074. The beneficiary is the lender named in the Note.

The granting clause is the operative provision that conveys the property to the trustee. It must be drafted to convey legal title — typically using language such as "Grantor hereby irrevocably grants, transfers, and assigns to Trustee, in trust, with power of sale" — in a form sufficient under the applicable state's conveyancing statutes. In California, Civil Code § 2924 requires the Deed of Trust to contain specific language to invoke the non-judicial foreclosure procedure.

The property description section must contain the legal description of the property — the full parcel legal description as it appears in the county assessor's records, typically a Lot and Block description (for subdivided properties) or a Metes and Bounds description (for unsubdivided land). A street address alone is insufficient for recording purposes. The parcel identification number (APN or parcel number) should also be included.

The obligation secured clause states the total amount of the Promissory Note secured by the Deed of Trust and the date of the Note, and confirms that the Deed of Trust secures repayment of the Note and performance of all other obligations under the loan documents.

The borrower covenants section contains the borrower's promises to the lender: pay taxes and assessments; maintain hazard insurance naming the lender as loss payee or additional insured; keep the property in good repair; not commit waste; not transfer the property without the lender's consent (due-on-sale clause, enforced under the Garn-St. Germain Depository Institutions Act, 12 U.S.C. § 1701j-3); and allow the lender to inspect the property.

The power of sale clause grants the trustee the authority to sell the property at a public auction upon the beneficiary's written instruction following the borrower's default, without court approval, pursuant to the state's non-judicial foreclosure statute. This clause is the defining feature of a Deed of Trust — its absence would render the instrument a mortgage requiring judicial foreclosure.

The reconveyance and release clause requires the beneficiary to direct the trustee to execute and record a Deed of Reconveyance releasing the Deed of Trust upon full payment of the secured obligation. California Civil Code § 2941 requires the lender to record the reconveyance within 30 days of payoff, subject to a penalty of $500 plus actual damages for failure to comply.