Despite the similarities between the two security devices, they result in two quite different foreclosure processes involving different numbers of individuals. Distinctions between a deed of trust and a mortgage can be understood in more detail.
Key Takeaways
- A mortgage is a loan used to purchase a property, where the borrower pledges the property as collateral for the loan.
- A deed of trust is a legal document that provides security for a loan by transferring legal ownership of the property to a trustee until the loan is paid off.
- While a mortgage and a deed of trust provide security for a loan, a mortgage involves a direct relationship between the borrower and the lender. In contrast, a deed of trust involves a third-party trustee.
Mortgage vs Deed of Trust
A mortgage is a legal agreement between a bank or building society and a person who lends money at interest in exchange for the title of a property. A deed of trust is a legal agreement that is between a borrower and lender to have a property held in trust by an independent third party until the borrower pays the loan off.
Only activities relating to court or judicial proceedings are included in the mortgage foreclosure procedure. Notice of default, equitable redemption, lawsuit, statutory redemption, sheriff’s deed and sale, deficiency judgement, and a year available to redeem are all part of this process.
Trustees’ deed and sale, all sales final, no redemption, a notice of sale, a three-month notice of default, trustee‘s deed or a court/judicial action, and reinstatement period are all steps in the deed of trust process.
Comparison Table
| Parameters of Comparison | Mortgage | Deed of Trust |
|---|---|---|
| Parties Involved | Two parties are involved. (Borrower, lender) | Three parties involved (Borrower, lender, trustee) |
| Foreclosure Process | Judicial actions only, a notice of default, equitable redemption, a notice of sale, court or lawsuit, statutory redemption, sheriff’s deed and sale, deficiency judgement, a year available to redeem. | Trustee’s deed and sale, all sales final, no redemption, notice of sale, notice of default for three months, trustee’s deed or judicial action and reinstatement period. |
| Other Name | Mortgage note | Trust deed |
| Deficiency Judgement | Deficiency Judgement is possible. | Deficiency Judgement is not possible. |
| Stature of limitations | Outlaw 4 years from last payment date. | Outlaws 4 years by Trust note and never outlaws by Trust deed. |
What is Mortgage?
Only two parties are engaged in the mortgage procedure. The borrower, also known as a mortgagor, is one of the parties.
Notice of default, equitable redemption, a notice of sale, court or lawsuit, statutory redemption, sheriff’s deed and sale, deficiency judgement, and a year to redeem are all part of this process.
In the case of a mortgage, the lender also can award a deficiency judgement. Both the contract and the note from the last payment date or due date outlaw four years in a mortgage.
What is Deed of Trust?
Three people are engaged in the deed of trust process. The first is the one who takes the initiative, the second is the one who borrows, and the third is the trustee. Typically, a corporation or firm serves as the trustee.
If the foreclosure is done through judicial methods, the owner of a deed of the trust retains the same redemption rights as a mortgage. A trustee’s sale, a notice of default, and a notice of sale can all be considered in this case.
In the case of a deed of trust, the lender’s rights remain the same if the foreclosure is done through the courts. A shortfall judgement is not possible in the context of a Trustee’s sale.
It also forbids 4 years after the last payment date in the case of a Trust note or Deed of Trust. In the case of a trust deed, however, the lender always has the option of selling the trustee to recoup the outstanding loan or debt.
Main Differences Between Mortgage and Deed of Trust
- In a mortgage, both contract and note from the last payment date or due date outlaws four years. It doesn’t include relief, and the involved monies are also not collectable.
- A mortgage is also popularly known by its other name, ‘mortgage note’. On the other hand, the Deed of Trust is also known by its other name, ‘trust deed’.
- https://heinonline.org/hol-cgi-bin/get_pdf.cgi?handle=hein.journals/arz15§ion=13
- https://www.jstor.org/stable/3474580
Last Updated : 14 August, 2023
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Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.
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