Deed of Trust vs. Mortgage: What is the Difference? Part 2

Oct 26, 2023 | Holding Title

Getting a home loan and closing the sale can seem like an overwhelming sea of paperwork. You will have the agreement between the lender and the borrower among the documents. It could be a mortgage or a deed of trust. This post will take a closer look at the differences between a deed of trust and a mortgage.

To learn these agreements’ definitions, click here for part one.

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Deed of Trust vs. Mortgage: Similarities and Differences

How are They Similar?

Both are legal agreements that come with home loans. They both involve a lender agreeing to provide funds so a borrower can purchase real estate. The borrower also agrees to repayment terms.

Mortgages and deeds of trust also place a lien on the property. Essentially, both assign the property as collateral and give the lender foreclosure rights. If the buyer fails to repay, the lender can foreclose under the terms of the contract.

Another similarity is that state laws limit the options of lenders. In most cases, state law will determine which type of agreement you use. Some states only use mortgages, and others only use deeds of trust. You also have a few states that allow both. Tennessee is a state that uses deeds of trust.

How are They Different?

One of the obvious differences is the parties to the agreement. Both mortgages and trust deeds will have lenders and borrowers. However, deeds of trust also have trustees. The trustee is an impartial third party that holds the title until the borrower repays the home loan.

Title ownership is another difference. With a mortgage, the borrower holds full legal title during the loan. Under a deed of trust, the trustee holds the title. Until the loan’s repayment, the borrower has equitable title, giving them the right to use and possess the property.

Another difference is what happens if the borrower fails to repay. Under a mortgage, foreclosure is a judicial process. With a deed of trust, the trustee oversees the foreclosure process.

While trust deeds and mortgages are different, they serve the same function. That said, the legal differences can affect both lenders and borrowers. Consulting an attorney can help you understand your rights under a mortgage or deed of trust.

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