Trust Deed vs. Mortgage

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What’s the Difference Between a Trust Deed and a Mortgage?

Both mortgages and trust deeds are used during a home purchase.  However, the main difference is that with a mortgage, there are only two parties involved- the borrower and the lender.  In most cases, these are the prospective buyer and a mortgage company. 

In a trust deed, there are three parties- the lender, the borrower, and a “trustee”.  The trustee is a neutral third party who is entrusted with the property in question.  The lender may place the title to the property with the trustee, who will hold it in trust as security for the loan.  In the event that the borrower defaults on the loan, the trustee may then be authorized to sell the property, with the proceeds going to the borrower. 

Are There Any Advantages to Trust Deeds Versus Mortgages?

Trust deeds may be beneficial in instances where the mortgage lender requires some form of security for the loan.  In this case, the property itself becomes security for the loan.  Also, trust deeds may also allow the lender to sell the house through a foreclosure by power of sale rather than through a judicial sale.  That is, the lender won’t be required to go through the court system to conduct a foreclosure, and instead can conduct the process according through the trust agreement terms.

Also, trust deeds typically allow the borrower some time to pay off their debt before the home is sold.  This is known as the “right of redemption”.  While this might not be common (most foreclosures occur because of lack of money in the first place), it can help the person avoid foreclosure and keep their property in the long run. 

Trust deeds are not allowed in all states.  You wish to check with a professional to see what the laws in your area say about trust deeds vs. mortgages.

Do I Need a Lawyer for Help With a Trust Deed or Mortgage?

Trust deeds and mortgages may involve some complicated legal concepts.  If you need assistance with any real estate issues, you may wish to hire a lawyer for guidance.  Your attorney can explain to you whether a mortgage may be preferable to a trust deed, or vice versa.  Also, your lawyer can provide you with legal representation in the event that you need to file a lawsuit for a dispute.

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Last Modified: 04-30-2013 02:48 PM PDT

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