Whenever a borrower affixes his signature to a promissory note, he or she agrees to pay a creditor a given total of money, under specific provisions. So that the creditor is able to take care of his or her interests, he or she will ask the borrower to security document like a mortgage, in favor of the creditor. The security instrument could either be a deed of trust, or a mortgage. The purpose of these two instruments is to ensure that the mortgage debt settlement in favor of the creditor, is secured.
State law dictates whether a deed of trust or mortgage is executed, depending on where the real estate or property concerned is located. In states using the title theory, mortgages are used to convey to the creditor, ownership of the property. The mortgage also provides that once the loan has been fully satisfied, title of the property is given back to the borrower. In states using the lien theory, the mortgage establishes a lien on the real estate alone, but the title is in favor of the borrower. The lien is voided when the borrower is able to pay the loan in full.
The main difference between deed of trust and mortgage is that a Deed of Trust involves three parties: a trustee, the creditor and the borrower. The mortgage involves only the creditor and the borrower. Under Deed of Trust, the trustee holds on to the title of the real estate on behalf of the creditor until the loan has been fully satisfied.
A Deed of Trust and mortgage also differs in the way it processes foreclosure proceedings. A Deed of Trust processes foreclosures more quickly, as compared with a mortgage which goes through the courts to process a foreclosure. With a Deed of Trust, once the borrower is unable to satisfy the loan, the creditor serves to the trustee the Deed of Trust, gives the trustee instructions to sell the real estate.
A deed should not be confused with a Deed of Trust. A deed is an owner’s proof of ownership of a particular piece of property, while a Deed of Trust is a method of mortgage debt settlement through secured notes.
After proper notices have been posted and rules are followed, the property is sold at a trustee's sale and the loan is paid. Be careful not to confuse a deed, which conveys title and is evidence of ownership to property, with a Deed of Trust, which is a means of securing a note and providing for foreclosure proceedings.
Whether you are a borrower or a creditor, always seek legal advice if a loan you are involved in is in default. With a lawyer, you can be assured that all the requisites are complied with, and that everything is handled in an efficient manner.