Trust Deed (real Estate) - Terminology

Terminology

Historically, some of these documents were titled "deeds of trust" and others were titled "trust deeds," and U.S. case law prior to about 1990 tends to reflect both usages. Due to the rise of real estate securitization in the 1990s and the shift from "lend to hold" to "lend to securitize," the majority of residential real estate transactions are now completed with uniform security instruments which are consistently described as "deeds of trust" so as to avoid confusion with true trusts or true deeds (i.e., true conveyances rather than security interests in the form of conveyances). Thus, the more precise term of art "deed of trust" has become predominant in the case law since then.

Though a mortgage is technically an entirely different legal instrument (as noted above), deeds of trust are frequently called mortgages in the real estate loan business due to the functional similarity between deeds of trust and mortgages.

Although a deed of trust usually states that the borrower is making an "irrevocable" transfer to the trustee, it is common in many jurisdictions for borrowers to obtain second and third mortgages or trust deeds that make similar transfers to additional trustees (that is, of a property they already conveyed to the trustee on their first deed of trust). As with mortgages, deeds of trust are subject to the rule "first in time, first in right," meaning that the beneficiary of the first recorded deed of trust may foreclose and wipe out all junior deeds of trust recorded later in time. If this happens, the junior debt still exists, but becomes unsecured. If the debtor has sufficient senior secured claims upon his assets, the junior liens may be wiped out completely in bankruptcy.