PSI Virginia Real Estate Practice Exam

What is the primary function of a Deed of Trust in real property transactions?

1. To serve as the sole ownership document

2. To hold naked title for the benefit of the lender

3. To transfer property without financial obligation

4. To initiate foreclosure proceedings

The correct answer is: To hold naked title for the benefit of the lender

A Deed of Trust is primarily used in real property transactions to secure a loan, and it involves three parties: the borrower (trustor), the lender (beneficiary), and the third party (trustee). The main function of a Deed of Trust is to hold naked title, which means that the title to the property is transferred to the trustee who holds it on behalf of the lender. This arrangement serves to protect the lender's interest in the property until the borrower fully repays the loan. In this context, "naked title" refers to the title held by the trustee that does not carry the full bundle of rights typically associated with ownership, as it is held for the benefit of the lender. This allows the lender to ensure that, in the event of default by the borrower, the lender can initiate foreclosure proceedings more efficiently. The Deed of Trust serves to establish the lender's security interest in the property, which is critical in real estate financing. The other options do not accurately describe the function of a Deed of Trust. It does not serve solely as an ownership document or transfer property without any financial responsibility. Additionally, while it can facilitate foreclosure proceedings, that is not its primary function; rather, it is a mechanism to