A trust deed, often referred to as a deed of trust, serves as a security instrument in real estate transactions. It is a legal document that involves three parties: the borrower (trustor), the lender (beneficiary), and a neutral third party known as the trustee. The purpose of a trust deed is to secure a loan on real property, meaning that the property itself is backing the loan.
When a borrower takes out a loan to purchase real estate, the trust deed ensures that the lender has a claim against the property in the event of default. If the borrower fails to fulfill their payment obligations, the lender can initiate a foreclosure process through the trustee, allowing them to recover the owed amount by selling the property.
This distinction is crucial as it highlights the role of a trust deed in protecting the lender’s investment rather than functioning as a lease agreement, insurance policy, or service contract. A lease agreement relates to rental terms between a landlord and tenant, an insurance policy provides financial protection against certain risks, and a contract for service outlines the terms for service provision, none of which embody the essence of securing loans tied to real estate as a trust deed does.