Difference Between Mortgage and Deed of Trust

Mortgage vs Deed of Trust
 

Both deeds and mortgages use documents that are very similar to one another in that they perform the same function which is securing loan repayments. Loan repayments are secured through placing liens on properties, whereby the lender has the right to sell the property and recover losses if the borrower defaults on the loan. Despite these similarities there a number of differences between the two types of documents. The article offers a comprehensive explanation on each term and shows the similarities and differences between mortgage and deed of trust.

Mortgage

A mortgage is a contract between the lender and the borrower that allows an individual to borrow money from a lender for the purchase of housing. When a mortgage is being granted a mortgage note will be issued as a lien on the housing unit that is being purchased. This note promises that the borrower will repay the loan to the bank under the terms that have been agreed. This ensures that the borrower cannot sell the house until such time that the loan taken out has been repaid in full. Mortgage notes allow either the borrower or the lender to hold title of ownership of the house (this may depend on the laws from region to region). In the event that the borrower defaults on their loan repayments the lender can seize the property and sell it to recover any losses that were suffered. This process is also called a foreclosure.

Deed of Trust

A deed of trust occurs between 3 parties; the borrower, lender, and a third party known as the trustee. The trustee is a neutral third person or party and can be a bank, lawyer, or some other independent entity. When a deed of trust is being used the lender and the borrower will transfer the title of the property to the trustee until the loan amount has been settled. In the event that the borrower defaults on their loan the trustee will sell the property and give the sales proceeds to the lender who will then use those funds to recover their losses. Once the borrower repays their loan the borrower will ask the trustee to release the title of the house to the borrower who can now own and use the house for the rest of its useful life.

What is the difference between Mortgage and Deed of Trust?

Deeds and Mortgages perform a similar function by securing loan repayment by placing liens on real estate property. Both documents make sure that the borrower meets their promises to make loan repayments, and they both allow the lender or the trustee to sell the property to recover losses if the borrower defaults. There are, however, a number of differences between the two. A mortgage involves only 2 parties; the borrower and the lender whereas deeds of trust involve 3 parties; the borrower, lender, and trustee. The other major difference between the two can be seen in the foreclosure process. In a mortgage, the seizure and sale of property is done through a court order. In a deed of trust, the trustee has the right and power to make the sale, and can do so as soon as the lender shows proof to the trustee of the borrower’s default.

Summary:

Mortgage vs Deed of Trust

• Both deeds and mortgages use documents that are very similar to one another in that they perform the same function which is securing loan repayments.

• When a mortgage is being granted a mortgage note will be issued as a lien on the housing unit that is being purchased.

• When a deed of trust is being used the lender and borrower will transfer the title of the property to the trustee until the loan amount has been settled.

• A mortgage involves only 2 parties; the borrower and the lender whereas deeds of trust involve 3 parties; the borrower, lender, and trustee.

• In the foreclosure process, in a mortgage, the seizure and sale of property is done through a court order whereas, in a deed of trust, the trustee has the right and power to make the sale, and can do so as soon as the lender shows proof to the trustee of the borrower’s default.