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What is the difference between a mortgage and a deed of trust?
The main difference between a mortgage and a Deed of Trust is the procedure that is followed if the borrower breaches his or her agreement to pay off the loan. With a mortgage, if a borrower "defaults" – such as by failing to make monthly payments or meet other conditions of the loan, such as carrying homeowner’s insurance and maintaining the house in good repair – the lender must bring a court action in order to foreclose on the property. With a Deed of Trust, if the homeowner does not pay the loan, the foreclosure process is usually much faster and less complicated than the formal court foreclosure process.
As a technical matter, a mortgage involves a relationship between (1) the borrower/homeowner and (2) the lender, while a Deed of Trust involves three parties: the homeowner, the lender, and a title insurance company which is holding legal title to the real estate until the loan is fully repaid.
Once the loan is paid in full, the title company transfers property title over to the homeowner. If the homeowner defaults, then the lender simply complies with the rather straight forward provisions of the law of the state where the property is located, gives the appropriate notices, and then turns the property back to the lender.
If you are ever facing foreclosure, you would be well served by consulting with an attorney in the state where the property is located. |
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