Can You Sell a House with a Deed of Trust?

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|10 min read

When you take out a mortgage, your lender will have several forms and documents for you to sign. One of these pieces could be a deed of trust, which highlights that the lender holds on to the legal title through a trustee until the loan is paid off. This is a common legal document that lenders use to reach a fair agreement with the loan.   

If you decide to sell your house, you will need to keep your mortgage loan and deed of trust in mind. Fortunately, you can still list your property and move in many cases. Use this guide to answer “Can you sell a house with a deed of trust?” and learn the steps to do so.

What Is a Deed of Trust?

When you use a mortgage to purchase a property, you do not own the house. Your lender is the official owner of the property until you pay off the loan. If you fail to make your payments, meaning you default on the loan, the lender can seize your property. They can start the foreclosure process, evict you, and sell the property to recoup their losses on the loan. 

Some states use a deed of trust to bring in a third party to support the lender and borrower. The trustee holds on to the title and works as a mediator between the homeowner and the lender. They also hold on to the deed and title so the lender doesn’t have to. The third party is often a title company. 

This third party is the main difference between a deed of trust and a traditional mortgage. A mortgage loan is between two parties, a borrower and a lender, while a deed of trust brings in a trustee. The use of a deed of trust is often regional, with some states incorporating this third party into the borrowing process while others follow the standard mortgage steps. 

When a borrower defaults on a loan with a deed of trust, the trustee works with the homeowner to either repay the debt or start the foreclosure process. They mediate between the borrower and lender to reach an agreement. 

Can You Sell a House with a Deed of Trust?

It is possible to sell a house with a deed of trust, just like selling a house with a traditional mortgage. If you have a loan with a deed of trust, you will need to confirm with your lender that you can sell the house and alert the third-party trustee to your plans.

Once you are under contract, the lender and trustee will develop closing documents to make a lump sum payment on the loan and transfer the title to your buyer. You will receive any profits on the home sale once your loan is paid off and the other closing costs (like agent commissions) are paid. 

The only time you might not be able to sell a house with a deed of trust is if you owe more to your lender than your house is worth. For example, if you have $300,000 left on your loan and you are listing your house at $280,000, then you would still owe money to your lender after the sale.

It is still worth talking to your lender about your options if this is the case. They might authorize a short sale and cut their losses or you may need to continue making monthly payments after the sale to pay off your loan.

Steps to Sell a House with a Deed of Trust

The real estate transaction with a deed of trust won’t look that different compared to marketing your home with a traditional mortgage. However, you can streamline the process by contacting your lender or title company before listing to confirm that you can sell. Here are the steps you will take. 

Review Your Deed of Trust Agreement

The first step is to look up your existing deed of trust paperwork and confirm that selling property is allowed under your terms and conditions. While the majority of deed of trust and mortgage agreements allow you to sell your house, some lenders charge prepayment penalties for paying ahead of schedule. You might have to pay hefty fees at closing because of this requirement. 

Prepayment penalties don’t have to prevent you from selling, but they are a significant financial aspect that could impact your moving timeline or plans. 

Legal and financial jargon can be confusing. If you aren’t sure what your deed of trust documentation means, reach out to the trustee or a real estate lawyer. They can walk you through each provision and let you know of any red flags that could affect the sale.

Determine the Payoff Amount

The payoff amount is what you will pay the mortgage company when you sell your house and close the loan. This is different from your principal balance. The payoff amount includes any fees or interest from the current period. If your loan has prepayment penalties, these will be added to the payoff amount. 

You will need to contact your lender to determine your payoff amount. This will also help you estimate your profits on the home sale. For example, if you sell your house for $400,000 and your payoff amount is $150,000 then your profits would be $250,000 before you subtract agent commissions and other closing costs. 

When you take out a mortgage, regardless of whether or not you have a deed of trust, your lender puts a lien on the house. The payoff amount is what you need to give the lender to remove the lien from the property and clear the property for sale.  

Hire a Real Estate Agent

Once you have an estimated financial picture of what you owe and the potential costs of selling your house, you can move forward with the listing process. Interview real estate agents and hire someone who is experienced with trust deed sales. Ask your potential agents what they know about these documents and how they impact real estate transactions. You can also bring your mortgage documentation to the agent interview to confirm that selling now is a strategic financial decision. 

The National Association of Realtors (NAR) says real estate agents have a fiduciary duty to act in the best interest of their clients, not for their own profits. This means your Realtor should never push you to sell your home if it could be financially damaging, just so they can earn a commission. 

FastExpert is a great place to start when interviewing real estate agents. You can find trusted professionals who follow the ethical guidelines of their field. 

Prepare Your House for Sale

The next step is to prepare your home for listing just like any other home sale. Not only will preparing your home for sale help you attract buyers, but it can also potentially increase the sale value and the offers you receive. This means you can increase your profits once the trust deed and closing costs are paid off. Here are a few steps you can take: 

  • Make necessary repairs. Repairing your home can prevent delays in the home sale after the inspection process. There will be fewer issues your buyers will want addressed. 
  • Declutter. Donate unwanted items and throw away anything that would be considered trash. You may want to get a storage unit during this time to remove personal items and other distracting pieces from your house. 
  • Stage the property. Organize your house to make it appeal to buyers. Your Realtor may recommend working with a professional staging company at this time. 
  • Clean. A clean house will look bigger and will seem more inviting. 

Not everyone has the time or money to make essential repairs and upgrades to their home before listing it. However, decluttering can help you streamline the moving process. Cleaning is also a small step you can take that makes a big impact on potential buyers.

Market the Property

Work with your real estate agent to develop a marketing strategy for your house. They will likely bring in a professional photographer and potentially even a videographer. Your agent can walk you through their plans to have open houses and any digital marketing tactics they want to try. 

Your agent will highlight what they consider the best parts of your house and how they plan to showcase them. For example, they might love your big backyard or your updated appliances. Talk to your agent about your favorite features that you think would appeal to buyers.

Accept an Offer and Open Escrow

When a potential buyer or buyers love your home and make an offer, you can accept the bid and open escrow. Your buyers will submit an earnest money deposit on the house to confirm that they are serious about the purchase process. This money will also be held by a neutral third party like an escrow company.

Your buyers will move through various contingencies like completing the inspection and appraisal processes while your real estate agent works with the title company to prepare the closing paperwork. Your Realtor should let the trustee and lender associated with your mortgage know about the pending sale. This will help them act quickly so all parties involved can close on time.

Use Sale Proceeds to Pay Off the Deed of Trust

Once you are cleared to close, you can move forward with closing the trust deed and paying off the mortgage. The title company should handle this process to ensure everyone gets paid. This also includes covering your agent commissions, any relevant estate taxes, and other fees that come with home sales. 

Once the mortgage is paid off, the lender will clear the lien from your property. This means there aren’t any debts on the house and it can be sold.

Close the Sale

The final step is to close the sale. You will sign closing documents as a seller and submit your financial information to the title company so they can deposit the profits into your account. The buyer will also sign closing paperwork and take legal ownership of the property. This is how all real estate transactions end. You no longer have a trust deed, a mortgage loan, or any claim to the property you just sold.

What Happens to Your Deed of Trust If You Sell Your House?

When you sell your house, the legal title of the property is distributed from your trustee to your buyer. If your buyer used a mortgage with a trust deed to buy the house, then the property title goes to their third party. Your trustee no longer controls the title and your lender gets a payoff that closes the loan. After the payoff, the lender removes the lien from the house, allowing you to sell it.

All of this can happen faster than you expect. Lenders are used to people moving before their loans are paid off and know to expect the lump sum payments to close the loan. The best thing you can do to speed up this process is to communicate your plans to sell and your closing date with your lender ahead of time. Many title companies will do this for you.  

After closing, there is no longer a home loan, you no longer have a title to the house, and you do not own the property. You are officially removed from the asset.

Find a Trusted Agent at FastExpert

If you purchased a house with a trust deed associated with the loan and now want to sell the property, one of the first steps is to hire a real estate agent. These professionals can help you understand your payoff amount. They will also work with the neutral third party that was given your deed. You don’t have to be an expert in the home sale process when you have a trusted Realtor to support you. 

Turn to FastExpert to find agents with experience in selling, buying, and managing real estate investments. You can hire a partner to guide you through each step and make you feel confident about your decision. Finding an agent is free through our service, so there’s no risk in searching our database today.

Amanda Dodge

Amanda Dodge is a real estate writer and expert. She has worked in the field for more than eight years. She spends her time writing and researching trends in real estate, finance, and business. She graduated with a bachelor's degree in Communications from Florida State University.

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