What does the term 'deed of trust' signify?

The term 'deed of trust' refers to a legal document used in real estate financing that secures a loan. This document involves three parties: the borrower, the lender, and a third-party trustee. When a borrower takes out a loan secured by property, the title to that property is temporarily transferred to the trustee. This arrangement provides a layer of security for the lender, as the trustee holds the title until the loan is fully repaid.

If the borrower defaults on the loan, the trustee has the authority to initiate a foreclosure process on behalf of the lender, allowing the lender to recover their investment. This structure is advantageous because it can streamline the foreclosure process compared to traditional mortgages, which typically involve more complexity and might require judicial intervention.

The other choices do not accurately capture the full nature or implications of a deed of trust. For instance, it is not simply a contract between the borrower and bank, as it involves a separate trustee. Additionally, while it does represent some level of security for the lender, it is not a form of insurance, which serves a different purpose. Finally, while deeds of trust can be used in commercial properties, they are not exclusively popular in that segment, as they are also commonly utilized in residential financing.