Mortgage vs. Deed of Trust (Q+A)

Q.  Can you explain the difference between a mortgage and a deed of trust which I guess is what you all use out here?

A.  The fundamental difference between Deed of Trusts and Mortgages is the procedure that is required in the event that borrower defaults on his or her obligation to pay off the loan and breaks the agreement.  With a mortgage, if a borrower defaults, such as by failing to make monthly payments or meet other conditions of the loan, like carrying homeowner's insurance or maintaining the house in good repair, the process is more expensive and time-consuming: the lender has to bring a court action in order to foreclose on the property.

With a Trust Deed, the foreclosure process is sped up and less cumbersome than the formality of a court foreclosure hearing that is required with a Mortgage Deed.  If you default on your payment of the loan, the lender simply complies with the provisions of the law of the state where the property is located, gives the appropriate notices, and the trustee then cedes the property back to the lender or the trustee may sell the property at the request of the lender without a court proceeding.

Most of us incorrectly call our home loan a mortgage when in fact it is not.  A mortgage is the document proving the legal claim or lien on a piece of property that you give to the lender who holds it as security for the money you borrowed.  The lien is recorded in the public records.  With a mortgage you pledge the property as security for the repayment of the loan, but you do not transfer title to the lender.

If you (the mortgagee) repay your loan in accordance with the terms of the mortgage, it is cancelled or satisfied by the lender (the mortgagor).  If you do not repay your debt, however, the lender has the right to sell the secured property to recover funds through a court proceeding called foreclosure.

In California, and most other states, a deed of trust is used in place of a mortgage.  Whereas, a mortgage involves two parties--the borrower and the lender, a deed of trust involves three, the borrower (or trustor), the lender (the beneficiary) and a trustee, a neutral third party, such as an attorney or title agent.  As with the mortgage deed, the trust deed is also recorded and a matter of public record.  In a deed of trust transaction, the borrower transfers the legal title for the property to the trustee who holds the property in trust as security for the payment of the loan to the lender.  The deed of trust is cancelled when the debt is paid.  When the loan is fully paid, the title company transfers property title to the homeowner via a deed of reconveyance.

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