In What Way Does a Deed of Trust Differ From a Mortgage?

Using Property as Security for a Loan

Securing a loan in real estate often involves pledging the purchased property as collateral. This provides assurance to the lender that they can recover funds if the borrower defaults. Mortgages and deeds of trust are two primary legal instruments that facilitate this. Both establish a security interest in the property, allowing the lender a claim until the debt is satisfied.

Fundamental Structures and Parties

A mortgage involves two principal parties: the borrower (mortgagor) and the lender (mortgagee). The borrower retains legal title to the property while granting the lender a lien against it. This lien serves as the security interest, allowing the lender a claim on the property if loan terms are not fulfilled. The mortgage document specifies the terms of this lien and its enforcement conditions.

Conversely, a deed of trust involves three distinct parties: the borrower (trustor), the lender (beneficiary), and a neutral third party (trustee). The borrower conveys legal title to the property to the trustee, who holds it “in trust” for the benefit of the lender. The borrower retains equitable title, including the right to occupy and use the property, as long as loan payments are made.

The trustee, typically a title company or an escrow company, acts as an impartial intermediary. Their role is to hold the legal title until the loan is fully repaid or a default occurs. This three-party structure is a core structural difference from a mortgage, where the lender directly holds the lien. The trustee’s presence in a deed of trust streamlines certain procedures, particularly during a loan default.

Foreclosure Procedures

The process for reclaiming property when a loan defaults differs significantly between mortgages and deeds of trust. For mortgages, foreclosure typically requires a judicial process, meaning the lender must file a lawsuit in court. This involves court proceedings where a judge reviews the case and issues a judgment. The court then orders a public sale of the property to satisfy the debt.

This court-supervised process can be lengthy, often taking several months to years. The lender must adhere to specific legal steps, including serving notice to the borrower and allowing the borrower to respond or cure the default. While providing more borrower protections, judicial foreclosure can be more costly and time-consuming for lenders.

In contrast, deeds of trust commonly utilize a non-judicial foreclosure process, also known as “power of sale” foreclosure. This method does not require court intervention, as the deed of trust grants the trustee the authority to sell the property if the borrower defaults. The trustee initiates the sale by providing specific notices to the borrower and the public, adhering to statutory timelines.

The non-judicial process generally proceeds more quickly, often completing within a few months. The trustee orchestrates the sale, typically a public auction, and uses the proceeds to repay the lender. This expedited process is a primary reason why deeds of trust are favored by lenders in jurisdictions where non-judicial foreclosure is permitted.

Title Transfer and Release

How property title is handled during the loan’s life and released upon repayment also varies between them. With a mortgage, the borrower generally retains legal title to the property from the outset. The lender’s interest is recorded as a lien against the property, which clouds the title but does not transfer ownership.

Once the mortgage loan is fully repaid, the lender issues a document known as a “satisfaction of mortgage” or “mortgage release.” This document confirms that the debt has been satisfied and the lien is removed from the property. The borrower is responsible for recording this satisfaction document with the appropriate county recorder’s office. Recording the satisfaction officially clears the property’s title, signifying that the lender no longer has a claim.

For a deed of trust, legal title is initially transferred to the trustee. The trustee holds this legal title until the borrower fulfills all obligations under the loan agreement. Upon full repayment, the trustee issues a “deed of reconveyance” to the borrower.

This deed of reconveyance formally transfers legal title back to the borrower, extinguishing the trustee’s interest. Like the satisfaction of mortgage, the deed of reconveyance must be recorded in the county land records. Recording ensures public records reflect clear title.