Deeds of Trust vs. Mortgages

What is a Deed of Trust and what is a mortgage and what is the difference?

Okay, let’s go over the basics of buying a home so that we can properly frame the concept of deeds of trust and mortgages. When you buy a home, you probably took out a loan and signed a promissory note. The loan gives you money and the promissory note legally obligates you to pay back the loan. In return for the money, you also gave your lender a mortgage which is a lien against your home. The mortgage is called a “security interest,” which secures “the performance of an obligation (usually but not always the payment of a debt) which gives the beneficiary of the security interest certain preferential rights in relation to the assets.” What that means is that if you don’t pay back the debt, the lender gets the house. Now, another version of the security interest is called a Deed of Trust.

The difference with a Deed of Trust is that the deed, or title to the home, is transferred to a trustee (a trust or title company) instead of to the bank. The trustee holds the property for the loan and if the loan is repaid, the title is transferred to the borrower. If the borrower defaults, the trustee can then sell the property and pay the lender back from the proceeds of the sale without going to court.

You may remember, from the foreclosure process article, that in foreclosure the lender must file papers with the court. With a Deed of Trust, this filing process is unnecessary and so the process is much faster.