Differences Between Mortgages and a Deed of Trust

A mortgage and a deed of trust are very similar. They are both loan agreements where a borrower uses the title to a piece of property as collateral for a loan.

In a loan transaction, the lender requires the borrower to sign either the mortgage or the deed of trust. Both of these documents set up the terms of the loan and a very similar. Both give the lender the right to sell the property through foreclosure in case the borrower defaults on the loan. However, there are two significant differences between the two: the involved parties and the foreclosure process.

Typically, mortgages and deeds of trusts have the same clauses. Both require the borrower has homeowner’s insurance, that the property is kept in good condition, and no hazardous substances are allowed on the property. Both mortgages and deeds of trust require the lender to give the borrower a breach letter and a specific amount of time to become current on the loan before beginning the foreclosure process.

Lenders in certain states such as California use deeds of trust to create security interests, while other states like Florida prefer mortgages. Depending upon the state the deed of trust may be called by another name. For example, Georgia calls the contract that gives the lender a security interest a “Security Deed.” However, it is the same thing as a deed of trust.

Mortgages and deeds of trust both use the borrower’s property as the source of repayment if the loan goes into default. However, they differ in two crucial ways. A mortgage has two parties: the lender and the borrower. A deed of trust, on the other hand, has three parties: the lender, the borrower, and the trustee. The trustee obtains the legal title to the property being used as collateral. This happens when the loan is originated and holds until the borrower pays the loan in full. Who the trustee is depends upon state laws. It may be an individual like an attorney or a business such as a bank. The lender typically chooses the trustee. The trustee becomes very important when the borrower goes into default and foreclosure proceedings begin. Trustees receive payment when they handle foreclosures and generally lookout for the lender’s interest during a foreclosure.

What Does Foreclosure Look Like?

If borrowers don’t make their payment, the lender will foreclose. The procedures of foreclosing a deed of trust or a mortgage depend entirely on the state laws and terms of the initial agreement. In states where lenders use mortgages, the lender files a lawsuit to begin the foreclosure process. This is called a judicial foreclosure. In states that use deeds of trust, the lender forecloses out of court using a process called nonjudicial foreclosure. Nonjudicial foreclosure can involve sending the borrowers a notice of default, recording the notice of default in the land records office, publishing information concerning the sale in newspapers, and giving the borrowers a notice of sale.

Deed of Trust or Mortgage? Which One is Best For You?

Deciding whether to use a mortgage or a deed of trust when buying your home depends on which state the property is located. For both a deed of trust and a mortgage the property serves as collateral in the case the borrower defaults.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
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Dennis@level4funding.com
Dennis Dahlberg Broker/RI/CEO

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22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
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About: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
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