What is a Deed of Trust?

Many people confuse the term Deed of Trust with a Deed. However, they are two entirely different things.

To keep things simple, a Deed is the document that is used to transfer property from one party to another. It is signed by the Grantor ( the party transferring the ownership)  and the Grantee (the party receiving the transfer of ownership). The Grantee does not sign the Deed. Once the Deed is executed (signed) and the Grantor’s signature is notarized, the document is then given to the Recorder’s Office in the county where the property resides for recordation. A small fee will need to be paid at that time to the county and a timestamp will be placed on the document   This document now becomes public record for all the world to see.

A Deed of Trust (DOT), on the other hand, is a loan-related document frequently utilized in Colorado in place of a mortgage.

When a loan is made to a borrower to purchase real property, in an arms-length transaction, the lender will normally have the borrower sign a Promissory Note.  The note is the borrower’s promise to pay the lender based on the terms it specifies. The note is not recorded with the county but is held by the Mortgagor (the lender.) In conjunction with the note being signed by the borrower, the lender will normally have the borrower sign a DOT which serves as the security for the note.  (A DOT is a transfer of interest in land by a borrower to a lender to secure the payment of the borrower’s debt.)

Although a DOT serves the same purpose as a type of security, it differs from a mortgage.

A DOT is an arrangement among three parties: the borrower, the lender, and an impartial trustee. In exchange for a loan of money from the lender, the borrower places legal title to real property in the hands of the trustee who holds it for the benefit of the lender named in the deed as the beneficiary. In Colorado, we have Public Trustees  (The governor appoints a Public Trustee for each county for a four-year term.)  The borrower retains equitable title to, and possession of, the property.  In Colorado, most lenders prefer to use DOT’s to secure their interest for a loan, and legal title to properties are held by the Public Trustee in the county where the secured property is located.  If a borrower defaults on a loan, it is a relatively easy and straightforward process for the lender to pursue a Public Trustee foreclosure.

The DOT is signed by the borrower(s), notarized, and like a deed, recorded in the county where the property resides.

For more information, feel free to contact Jeff Fogler.