The Difference Between a Mortgage and a Deed of Trust

A mortgage and a deed of trust are both used to secure repayment of a loan from a borrower in a home purchase. The main difference between a mortgage and a deed of trust is seen when the borrower breaches the agreement to pay off the loan. With a mortgage, if the borrower defaults by failing to make monthly payments or meet other conditions of the loan such as carrying homeowner's insurance, the lender must bring a court action to foreclose on the property. With a deed of trust, if the homeowner does not repay the loan, the foreclosure process is usually much faster and less complicated than this formal court foreclosure.

Number of Parties in the Transaction

A mortgage involves a relationship between two parties, the borrower/homeowner and the lender. A deed of trust involves three parties, the homeowner, the lender, and a trustee (title insurance company, bank, or other neutral third party), who holds legal title to the home or other real estate until the loan is fully repaid. Once the loan is paid in full, the trustee transfers property title to the homeowner/borrower.

Defaulting on a Loan

With a deed of trust, the trustee already has title to the property. If the trustee is notified by the lender that the homeowner/borrower defaulted on the loan, the trustee can start the non-judicial foreclosure process. The lender can tell the trustee to sell the property. This is a faster process for the lender than going through the court system by filing a lawsuit when a borrower defaults on a mortgage. The specific procedure followed depends on the laws of the state where the property is located. 

If you are facing foreclosure, it would be advisable to consult an attorney in the state where the property is located.