What's the Difference Between a Deed, Contract for Deed, Deed of Trust, and a Trust?
What's the Difference Between a Deed, Contract for Deed, Deed of Trust, and a Trust?
The Short Version
Deed: Proof of ownership.
Contract for Deed: Installment sale arrangement.
Deed of Trust: Lender’s security claim to a property.
Trust: Legal entity to hold and operate a property
DEED
This is a legal document that proves you own the property, it is the ownership transfer document.
A Deed serves as evidence of ownership and contains the specific details of the transfer, including the names of the parties involved, a description of the property, and any conditions or restrictions associated with the transfer. Deeds are essential for establishing and proving ownership rights.
CONTRACT FOR DEED
A Contract for Deed involves installment payments and ownership transfer after the contract is fulfilled (paid in full).
A Contract for Deed is literally a contract for the deed. When the contract is fulfilled, the deed is transferred. The seller retains legal ownership and the buyer gains equitable ownership (use of the property), while making installment payments. Ownership transfers to the buyer only after all terms are satisfied in full.
DEED OF TRUST
A deed of trust secures a loan by giving the lender the right to foreclose on a property.
A deed of trust is a “security instrument” used to secure the repayment of a debt owed. It involves three parties: borrower/grantor, lender/grantee, and trustee. The borrower gives partial rights of the property's title to the lender, held in trust by the trustee as security until repaid. If the borrower doesn't pay, the lender can instruct the trustee to sell the property to repay the lender.
TRUST
A trust is a legal entity that manages assets.
This is a legal structure that can hold and own assets, real estate, possessions and money. Trust creators (trustors) can select someone (a trustee) to manage the trust in the best interests of the beneficiaries (the people for whom the trust is designed to benefit).
PRACTICAL EXAMPLES
When you buy a house, you get the deed as evidence of ownership.
If you have to borrow money to buy it, you may have to give a deed of trust to your lender to secure the loan.
If you buy it on seller finance from the seller instead of using bank financing, you may end up giving a deed of trust to the seller as the lender (same as a bank).
If you buy it on seller finance but don’t get the deed at close of escrow, you may sign a contract for deed, and when you pay it off, the seller gives you the deed.
You can buy the house in your own name, an LLC, or a trust. Some people buy in a trust to simplify transfers/management/probate of the property and/or to limit liability.
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