Can You Sell A House With A Deed of Trust?

Have you ever wondered how a house is legally owned? It’s not as simple as just owning the keys. 

A deed of trust is an important legal document used to secure a mortgage. It’s an additional contract between a lender, a borrower, and a trustee. 

A trust deed outlines the terms of the mortgage and the property used as collateral for the promissory note. This way, the lender has a safety net if the borrower defaults on their payments.

Here’s the question: what happens when you want to sell a house tied to a deed of trust? Can you still do it? If so, how does the deed of trust factor into the selling process? 

In this guide, we’ll answer all these questions and help you sell your house with a deed. 

What is a Deed of Trust?

A deed of trust on a house is a legal document used in real estate transactions for home loans in the US. It’s a three-party agreement between a borrower (trustor), a lender (beneficiary), and a neutral third party (trustee).

The trustor transfers the legal title of the property to the trustee as collateral for the loan. Then, the trustee holds the property in trust for the beneficiary. Simply put, a deed of trust is a security tool that allows the trustee and lender to foreclose on the house if the borrower doesn’t complete their loan payments.

Although the trustee may seem like an unnecessary member of the agreement, their role is crucial. They act as a neutral intermediary, making sure both parties follow the terms of the deed of trust. If the borrower defaults, the trustee can start the foreclosure process on behalf of the beneficiary.

Who is the Trustor?

The trustor is the borrower or the deed of trust buyer. When borrowers get a mortgage on their property, they become the trustor. The trustor gives the property’s legal title to the trustee, who holds it in trust for the lender’s benefit.

Does a Deed of Trust Show Ownership of the Property?

No, a deed of trust does not show ownership. It only grants the property’s legal title to the trustee, but the trustor still has the equitable title. This means they have the right to use, possess, and enjoy the property.

These obligations include making timely payments on the loan. If they fail to do so, the trustee can start the foreclosure process on behalf of the lender. Trustors must also maintain the property’s condition and comply with applicable laws and regulations.

Can You Sell a House With a Deed of Trust?

Yes, you can sell a house with a deed of trust.

Many trustors sell their house with a deed of trust and use the sale proceeds to pay off the mortgage or home loan. However, the lender has the right to approve or deny the sale. If the sale price doesn’t cover the loan payment, the lender may need to accept a partial payoff or foreclose on the property.

Here’s how you can sell your home with a deed of trust. 

Step 1: Consult with Your Lender

First, you must inform the lender of your intention to sell the property. They’ll tell you the specific instructions and requirements for the sale process.

For instance, they may specify a minimum sale price they’ll accept. The lender may also have demands for the buyer’s credit score, income, or down payment.

Step 2: Obtain a Pre-Approval Letter

Get a pre-approval letter from a potential buyer to show that you are able to sell the house. This will come in handy when negotiating with the lender.

Step 3: Review the Deed of Trust

Take another look at the terms and conditions of your deed of trust. In some cases, the lender has already defined the restrictions and requirements for selling the property. This way, you won’t waste precious time on buyers that don’t meet the criteria. 

Step 4: Get the Lender’s Approval

Finally, submit the necessary documents to your lender for approval. These may include the purchase agreement, the buyer’s pre-approval letter, and other required information. 

Remember that the lender has the right to deny your request to sell the house. However, you’ll have a better chance if you ensure the sale proceeds cover the loan amount. 

Step 5: Coordinate with the Title Company

You’ll also need to work with a title company to help with the legal aspects of the sale. In most cases, the trustee is the title company. However, some states allow you to choose anyone as a trustee.

They’ll make sure the deed of trust is properly released and that the title to the property is transferred to the new buyer. With all the necessary approvals and documentation in place, you can finally close the sale.

What Happens When the Property Is Sold Before the Loan Is Repaid?

If the property is sold before the loan is paid, the homeowner must settle the balance with the lender using the proceeds from the sale. This is standard in any real estate transaction involving a deed of trust or mortgage.

In most cases, the escrow company or title company handles the loan payoff at closing. As long as the sale to pay the loan satisfies the outstanding amount or the lender agrees to a short payoff, the sale can proceed without issue.

Who Actually Owns the Property in a Deed of Trust Sale?

In a deed of trust sale, the trustee holds legal title to the home on behalf of the lender (the beneficiary) until the loan is paid. The borrower—often the homeowner—retains equitable interest and full use of the property, but not full legal ownership.

That’s why the trustee in a deed is involved in the foreclosure process, and why the property owner can’t simply sell without repaying the debt first.

Is There any Difference if You Sell Your House with a Deed of Trust? 

Selling a home with a deed of trust isn’t much different from selling property with a mortgage until you hit the back-end mechanics. The key differences come down to the parties involved, and how legal ownership is released.

In a mortgage, there are two parties: the borrower and the lender. In a deed of trust, a third-party trustee must also act to release the legal title once the loan is repaid or the home is sold.

This also affects how quickly the trustee can foreclose if the borrower defaults. It’s one reason many states use deeds of trust: they allow faster recovery for lenders and less court involvement.

What Does a Deed to a House Look Like?

People often ask, “What does a deed to a house look like?” or “What is a house deed?” when they’re trying to understand if they actually own the property outright.

A deed to a house is a signed legal document that transfers ownership of the property. It usually includes a legal description of the land, the names of the parties, and the type of transfer (such as grant deed or warranty deed). A deed of trust, on the other hand, is not proof of ownership but a security for a loan.

Deed of Trust vs. Trust Agreement

If you’re comparing legal documents, you might be wondering about “trust deed vs trust agreement.” A trust deed (or deed of trust) is used in real estate to secure repayment of a loan. A trust agreement, by contrast, is typically used in estate planning and controls how assets are held and distributed by a trustee.

The two are unrelated, despite the overlap in language. Don’t confuse real estate financing with asset management tools.

Do You Need a Real Estate Agent to Sell a House With a Deed of Trust?

Not legally, but it helps. If you need to sell your house fast, a real estate agent can help list the home, vet buyers, and handle the paperwork. But if you’re facing foreclosure or just want a quick close, selling directly to a note buyer or real estate investor might be faster.

And if your goal is to bypass the traditional sale route, firms like AX can buy or sell real estate-secured notes, especially in cases where the property is sold before the debt is satisfied.

Deed of Trust States vs. Mortgage States

It’s worth noting that certain states allow for deeds of trust, while others only allow traditional mortgages. Kentucky, Maryland, and South Dakota are the only states that will enable both.

While traditional mortgages are more common today, trust deeds are still used in certain regions. Twenty states, including Alaska, Arizona, California, Colorado, Idaho, Illinois, Mississippi, Missouri, Montana, North Carolina, Tennessee, Texas, Virginia, and West Virginia, still require trust deeds for real estate financing.  

Read more about deed of trust states vs. mortgage states here. 

Foreclosures in Deeds of Trust

Unlike a traditional mortgage, the lender doesn’t initiate foreclosure in a deed of trust. Instead, the trustee does it on the lender’s behalf. 

They also initiate it much quicker than usual, typically within three to six months of violating the loan terms. Trust deeds go through non-judicial foreclosures, while mortgages have judicial foreclosures. 

Sell Your Deed of Trust House with Amerinote Xchange Today

It’s entirely possible to sell your house with a deed of trust! However, the only issue is that some lenders may not be willing to negotiate. If that’s the case, you can work with a loan acquisition firm like Amerinote Xchange. 

First, they’ll purchase the mortgage note from the original lender. As they become the new lender, you’ll only have to negotiate with them to approve the property’s sale. Luckily, Amerinote Xchange is much more lenient than traditional buyers. 

Frequently Asked Questions 

What is a trust deed?

A trust deed (more commonly known as a deed of trust) is a legal document used to secure a loan on real property. It allows a third-party trustee to take action if the borrower defaults. This is how deeds of trust work in place of traditional mortgages in certain states.

What’s the difference between a deed of trust and a mortgage?

The main difference between a deed of trust and mortgage lies in how the lender enforces repayment. A mortgage involves two parties: the borrower and the lender. Meanwhile, a deed of trust adds a third-party trustee to hold the property title until the loan is paid off. In a default, the trustee can initiate a non-judicial foreclosure, which is faster than the court process required for mortgages.

Can you repay the loan with a lump sum when selling?

Yes. If you’re selling the property to recoup equity, you can repay the loan in full with a lump sum at closing. The title company handling the sale ensures the loan is paid off before ownership transfers. This is common in buying and selling real estate where a deed of trust is still active.

Who has legal ownership of the property during a deed of trust?

In a deed of trust, the owner of the property retains equitable interest, but not full legal ownership of the property. That belongs to the trustee until the title is released. The borrower maintains control over the property and can make payments, rent it out, or sell it as long as they satisfy the terms of the loan.

Does a deed of trust affect estate planning?

Yes. While a deed of trust isn’t an estate tool by itself, it can impact estate taxes and ownership transfer. Property still under a deed of trust may not transfer cleanly through a living trust unless the debt is resolved. This is why many people use a deed of trust alongside other planning documents, like a trust and promissory note agreement.

How does a deed of trust compare to a mortgage?

If you’re wondering how a mortgage and a deed compare, it comes down to enforcement and structure. A mortgage requires a court process to foreclose. A deed of trust, however, allows the third-party trustee to act on behalf of the lender without court approval. This makes it more efficient for lenders—but the borrower still has to meet all obligations, including monthly payments and maintaining interest in the property.