Definition of Deed of Trust Foreclosure

A deed of trust foreclosure is a legal procedure for lenders to collect on loans that go into default.

Mortgage

The deed of trust is the modern day version of the mortgage loan. In practical effect, there is little difference between a mortgage and a deed of trust.

Security Interest

When you borrow money for mortgage loan, your lender will require you to sign a deed of trust, which states that the lender has a security interest in your home, or some other real property, which serves as collateral for repayment of the loan.

Default

If you default in your repayment of the loan, your lender has a right to foreclose in order to recover the amount due on the loan.

Foreclosure

Foreclosure is a four- to six-month process that results in the lender holding a public auction where a property is sold to the highest bidder. The lender takes the sales proceeds to pay off the outstanding loan. If there is any extra money after paying off the loan, that money will come back to the borrower.

Example

You borrow $200,000 to buy your first home and, as security for the loan, the bank requires you to give a deed of trust on the home. Six months later, you lose your job and can't pay your loan back. The bank forecloses, sells your home for $200,000, and uses that money to pay off the $200,000 loan.

References

• Land Transactions and Finance; Grant S. Nelson and Dale A. Whitman, 2004