Mortgages and deeds of trust are two types of legal documents used when buying and selling real estate, especially when obtaining money from lenders to purchase a property.
Both a mortgage and a deed of trust are necessary, and they serve similar purposes. However, these two legal instruments differ in some key ways—especially in how they work and the legal procedures involved. It’s important for homeowners and lenders to understand how the two differ, so let’s take a closer look at some of the important differences between a mortgage and a deed of trust.
A mortgage is essentially a loan agreement between a borrower and a lender. The purpose of a mortgage is to finance a property. With a mortgage, there are typically two parties involved: the borrower (mortgagor) and the lender (mortgagee). Unlike a deed of trust, there is no trustee involved when signing a mortgage; the lender directly holds the lien on the property.
A mortgage requires a promissory note and mortgage document. It’s recorded at the Registry of Deeds in the county where you reside. When signing a mortgage, the borrower of the loan retains the equitable title throughout the entire loan term, while the lender holds the legal title until the loan is repaid in full.
A mortgage generally has fewer administrative costs and fees than a deed of trust. If the borrower defaults, the lender may be required to go through the (often long and complex) judicial foreclosure process to reclaim the property. This may include court proceedings, which can vary from state to state.
Unlike a mortgage, which only involves two parties, a deed of trust involves three parties: the borrower, the lender (beneficiary), and the trustee. Like a mortgage, a deed of trust requires a promissory note and is recorded at the registry of deeds in the county where you reside.
Unlike a mortgage, a deed of trust involves a trustee. The trustee holds the legal title on behalf of the beneficiary until the loan is fully repaid, while the beneficiary holds the security interest. This individual has the authority to initiate foreclosure proceedings and sell the property if the borrower defaults.
If the borrower defaults on the loan, a nonjudicial foreclosure process is often carried out, providing quicker recourse for the lender. This process is typically faster and more streamlined than a mortgage foreclosure, but it is still subject to state regulations.
With a deed of trust, foreclosure proceedings also may involve more administrative costs than a mortgage because of the trustee's role in foreclosure.
Now that we’ve got an understanding of what each document is, let’s take a look at some of the similarities between them:
There are several ways mortgages and deeds of trust differ, some of which we covered above. Here are some direct comparisons.
Trust deeds are a great option if you’re short on time or interested in flipping a home quickly. Using a deed of trust can benefit you, allowing you to purchase a property at a discounted price. The ultimate goal of a trust deed is to pay back the lender, so you can purchase the property for a price lower than its listing.
At Val-Chris Investments, we want our clients to have the best possible experience when investing in real estate, commercial, or mixed-use properties. Our team is here to help, whether you’re new to the real estate game or already have an impressive portfolio. We’re a creditable trust deed investment company in California that’s ready to make your dreams a reality. For more information, contact us today.