The terms deed and deed of trust are often confused with each other as they appear to mean the same thing in the real estate business. But they are completely different. These two legal documents serve two different purposes. However, both these documents carry equal importance in real estate business transactions.
Deed vs Deed of Trust
The main difference between deed and deed of trust is that a deed certifies that the property has been legally transferred to its new owner, but a deed of trust does not fully transfer all the legal rights of the property to the lender. Thus, a deed indicates transferring all legal rights of a property to another person, whereas a deed of trust can be seen as a sort of loan.
A deed is a legal document used in the real estate business to transfer the legal rights of a property from one person to another. It proves that the new owner has full legal title to the real estate property. There are many types of deeds, and the classification is done on the basis of the warranty the seller gives to the buyer.
A deed of trust is generally used for financing a real estate business. It is a document used in most real estate transactions. It protects the lender’s investment. Essentially the deed of trust allows the lender to foreclose the property if the borrower fails to pay within time or even breaches any of the terms mentioned in the document.
Comparison Table Between Deed and Deed of Trust
|Parameters of Comparison||Deed||Deed of Trust|
|Definition||A deed is a document of the law that allows the seller to sell or transfer a real estate property to the buyer.||A deed of trust is a legal document made between the lender and the borrower.|
|Purpose||Transfering full legal rights of a property from one person to the other||Financing real estate properties.|
|Types||There are many types of deeds such as deeds without warranty, general warranty deeds etc.||There are no clasifications.|
|Money||Here, the buyer pays the money before the deed is signed.||Here, the money is paid by the borrower after the deed is signed.|
What is Deed?
A deed is a title document used in the real estate business to legalize purchases of properties. It proves that the owner has legal rights over the property that has been handed over. This document deals with real property, transferring it from one person or entity to the other.
There are certain criteria that make this document legal. Those requirements are the grantor’s name, the person or entity handing over the property, or any term used instead. Apart from it, the person who is receiving the property, his name, and the grantor’s signature should also be listed in the document. A deed must contain the description of the property that has been handed from one person to the other.
The term used for this handing over of a property from one to the other is conveyance and is specially used in the real estate circle. In order to be effective and valid in the eye of the law, the document of the deed must contain and follow all the rules, terms, and language mentioned. However, this does not mean that these are not the only information that must be there in the document.
Now one needs to be cautious while listing down the terms of the document and should get it done by a professional so that other problems do not arise. However, deeds can be of different types like trust deeds, grant deeds, fiduciary deeds, etc. The difference between all these deeds lies in the type of warranty the owner uses to sell the property to the buyer.
What is Deed of Trust?
A deed of trust is a legal contract where the lender sells the property rights to another party apart from the borrower. For example, when a home is bought, most of the time, it is executed through a financing method. The deed of trust is mainly formed to protect the lender’s investment. Thus, a deed of trust can be seen as a sort of loan or mortgage.
This document thus provides the lender with the power to sell the property if the borrower fails to fulfill all the terms and conditions or even breaches it. This is called the power of sale. But in no way does it indicate that without a deed a trust, you cannot foreclose a property.
Necessarily, the problem arises when the lender does not obtain a deed of trust as, without it, he or she cannot file a lawsuit in court and ends up in a process that costs a huge amount of money and time. So the document of the deed of trust can prove the rights of the lender in this situation and gives him or her the legal ground to proceed further.
The legal rights of the lender remain intact till the time the borrower does not pay the debt or loan. After the full payment, the borrower receives all the rights over the property and becomes the new owner. Thus, the full ownership of the property goes to the borrower.
Main Differences Between Deed and Deed of Trust
- A deed is an official certified by the law of the state that allows the seller to sell the complete rights of a real estate property to the buyer. But a deed of trust is a sort of agreement between the lender and the borrower.
- In a deed, the person who transfers the property is called a seller, and the one who receives it is called a buyer. However, in a deed of trust, the former is the lender, and the latter is the borrower.
- In a deed, all the legal rights are fully transferred from the seller to the buyer. But in a deed of trust, after the payment is fully made, the rights are transferred.
- After signing a deed, the buyer can fully use the property. But in a deed a trust, it depends on the terms mentioned by the lender whether the borrower can fully use the property or not.
- In a deed, there is no amount of money that the receiver needs to pay. But in a deed of trust, the borrower needs to pay the decided money.
Both the documents, deeds, and deeds of trust have their own importance in the real estate business. But the use of the terms deed and deed of trust is misleading as most people don’t know the difference between them. A deed is a document of the law and proves the buyer has legal rights over the property of the seller. A deed of trust is a record with legal certification that is exactly the opposite of a deed. It does not permit the borrower to fully use the property as he or she has only partial ownership over it.