Mortgages and trust deeds are both instruments used by lenders to protect their interests when loaning money to an individual buying property.  Mortgages and trust deeds create a security interest in the property purchased with the loan to ensure repayment. If the loan isn’t repaid, the security interest provides the lender with the right to recover what is owed through a forced sale of the property. While both instruments fulfill the same function, they operate in a slightly different way.

What is a Mortgage?

A mortgage is a real estate lien placed on the property involving only two parties: the borrower and the lender. In most cases, this will be the prospective buyer (borrower) and a mortgage company (lender).

The borrower uses the loan to purchase the property and the borrower places the real estate lien on the property. If the borrower fails to pay off the loan, the borrower can foreclose on the property and auction it off to pay off the debt.

What is a Trust Deed?

In contrast, a deed of trust involves three parties: the lender, the borrower, and a trustee. In a deed of trust, the borrower signs a promissory note for the loan to purchase the property. Then the title of the property is transferred to a neutral third party (the trustee) to hold in trust until the loan is paid off. If the borrower defaults on the loan, the trustee may then be authorized to sell the property, with the proceeds going to pay off the remaining debt.

Are There Any Advantages to Trust Deeds vs. Mortgages?

Most states usually have either mortgages or deeds of trust as the standard tool for real estate purchases, not both. Both instruments are effective in instances where the lender requires additional security for the loan. 

However, deeds of trust may be more appealing to lenders. This is because in the event of a default on the loan, the lender can sell the property without having to go through court. Mortgages, on the other hand, require the lender to file a claim in court to foreclose the property. If successful, the court will order a judicial sale of the property to pay off the remaining debt.

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 skilled mortgage 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 if you need to file a lawsuit for a dispute