Mortgages and deeds of trust are two distinct forms of contracts, despite the fact that they are frequently used interchangeably. A direct contract between the borrower and the lender is called a mortgage. As collateral for the loan, the borrower commits the property to the lender and holds ownership to it. When a deed of trust is used, the borrower does not hold the property's title.
Instead, a third entity, called a trustee, temporarily holds the title and will only release it to the borrower, called the trustor, upon complete repayment of the loan. This distinction between deeds of trust and mortgages becomes crucial in the event that a borrower experiences loan failure and the lender is forced to foreclose. Compared to mortgages, deeds of trust are far more prevalent in the United States.
Comparison chart
| Deed Of Trust | Mortgage |
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| Ownership | A third-party, known as trustee, holds title to the property until the borrower has paid off the loan. | The borrower owns title to the property, but pledges it to the lender as security for the loan. |
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| Foreclosure Process | Allows for non-judicial foreclosure. | The lender must go to court before foreclosing on the property. |
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| Favored By | Lenders | Borrowers |
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Foreclosures
Deeds of trust are utilized in states that permit non-judicial foreclosure, although mortgages necessitate the employment of a judicial foreclosure procedure. This makes sense since the lender must first take possession of the property from the borrower before foreclosing on it in the event of a mortgage failure. The procedure of obtaining a court order for this transfer of ownership can be laborious and time-consuming for a lender.
A deed of trust gives the trustee the right to sell the property in order to pay back the lender because the borrower does not initially hold the title. For a trustee to initiate a foreclosure, no court procedure is necessary.Because of this, when given the choice between a deed of trust and a mortgage contract, lenders will frequently select them.
The following video provides a thorough explanation of the distinction between a mortgage and a deed of trust:
Rights of Redemption
The term "right of redemption" describes a borrower's legal right to attempt to recover property that they are losing—or have already lost—to foreclosure. They have to pay back debt and frequently the main amount of the initial loan in order to get their property back.
States that support deeds of trust may appear to offer less rights and safeguards to borrowers, but in reality, they typically have more lenient redemption laws than states that exclusively allow mortgages.A year after the property is foreclosed upon and put up for auction, some jurisdictions will even give borrowers the opportunity to attempt to repay their defaulted house loan, however this varies greatly from state to state.Those who have experienced a foreclosure may find such leniency in deed of trust states to be quite beneficial, but anyone who has purchased a repossessed home at auction may find it challenging.
Prevalence in U.S. States
Deeds of trust in real estate are permitted in more than 30 states as well as the District of Columbia. In most U.S. states, trust deeds are far more frequent than mortgages since they are so much more attractive to lenders. However, several states, such as Florida, New York, and Vermont, only allow mortgages.
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A look at judicial and non-judicial foreclosures in trust deed states and mortgage-only states. Source: RealtyTrac.
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