Explanations

For a conventional loan, which is a mortgage loan not guaranteed by a governmental agency, the lending institution (also known as the beneficiary in a trust deed transaction) holds the promissory note and the beneficial interests associated with the trust deed.

Here’s how the roles typically break down in California, which primarily uses deeds of trust:

While the trustee holds “naked title” (bare title) to the property as collateral, they do not have possessory rights or other ownership rights. The trustee’s primary responsibilities are to release the lien when the loan is paid off or to initiate foreclosure if the borrower defaults. The actual beneficial interest and the right to collect payments (represented by the note) belong to the lending institution.

The promissory note is the lender’s main evidence of the loan debt, functioning as an “IOU” for the original loan. The lending institution (or creditor) is the payee who will be repaid.

The trust deed (or deed of trust) is the security instrument that creates a voluntary lien on the real property to secure the repayment of the debt.

In a trust deed, there are three parties: the borrower (trustor), the lender (beneficiary), and a neutral third party called the trustee.

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