What Is the Difference between a Mortgage and a Deed of Trust?
To the average person, there is no difference between a mortgage and a deed of trust. Whether you have a mortgage or a deed of trust relies only on location. In general terms, the eastern side of the country uses mortgages while the western side uses deeds of trust. The reason for this difference comes from theories within property law. The use of these theories varies across jurisdictions, resulting in this difference.
The technical difference between the two comes down to who holds an interest in your property. With a deed of trust, a trustee holds the interest. With a mortgage, the bank holds an interest. This means that if you have a mortgage, you are directly giving the bank your money, rather than having a trustee hold onto it until the bank or courts need it.
The similarities lie everywhere else within these two things. Both of these documents secure a loan in which the borrower needs to repay. Under both a mortgage and a deed of trust, if the borrower cannot repay the money, the lender has the right to sell the property. Both of these documents allow one party to borrow money in order to own property while allowing another party the right to sell.
The only instance in which the differences arise are in the case of a foreclosure. With a mortgage, if the borrower cannot pay, the mortgage is handed to the courts. The lender can file a lawsuit. This is referred to as judicial foreclosure. In the case of a deed of trust, the foreclosure does not have to go through the courts. This is referred to as non-judicial foreclosure. This type of foreclosure is much quicker and cost-effective.
While most states have either mortgages or deeds of trust, there are a few states that allow you to choose which is better for you. These states include Alabama, Arizona, Arkansas, Illinois, Kentucky, Maryland, Michigan, and Montana. For every other state, understanding the differences between a mortgage and a deed of trust is just a procedural issue.