What is a trust deed?

A trust deed, also known as a deed of trust, serves as a legal instrument used to secure a loan, typically in real estate transactions. In this arrangement, the borrower conveys the title of the property to a third party, called the trustee, who holds it on behalf of the lender until the loan is paid off. This structure provides the lender with a secured interest in the property, enabling them to initiate a foreclosure process if the borrower defaults on the loan. Unlike a traditional mortgage, which directly ties the borrower and lender, a trust deed involves three parties: the borrower, the lender, and the trustee. This mechanism protects the lender's investment while offering a level of flexibility to the borrower.

The other options do not accurately reflect the purpose of a trust deed. Mortgage insurance is related to protecting lenders against defaults but is not involved in securing the property directly like a trust deed. A document that outlines property taxes pertains to tax assessments rather than loan security. A legal notice of default addresses the consequences of a borrower failing to meet their loan obligations but is not a mechanism for securing the loan itself.