assignment of mortgage vs deed of trust

Deed Of Trust: What It Is And How It Works

Updated: Mar 2, 2023, 3:15am

Buying property usually comes with an avalanche of paperwork. It can be a confusing process, especially when it comes to knowing the difference between the various documents you sign. If there’s one contract that’s important to understand, however, it’s the deed of trust.

Depending on your lender and the state you live in, you may or may not need a deed of trust when financing a home purchase. Here’s what you should know about this contract and how it differs from a mortgage .

What Is a Deed Of Trust?

When you finance the purchase of a property, you will sign either a mortgage or deed of trust—but not both. You can take out a mortgage in all 50 U.S. states, while a deed of trust is only available in some states.

A deed of trust is a legal document that secures a real estate transaction. It works similarly to a mortgage, though it’s not quite the same thing. Essentially, it states that a designated third party holds legal title to your property until you’ve paid it off according to the terms of your loan. Deeds of trust are recorded in public records just like a mortgage.

How Does a Deed of Trust Work?

A deed of trust exists so that the lender has some recourse if you don’t pay your loan as agreed. There are three parties involved in a deed of trust: the trustor, the beneficiary and the trustee.

The three parties involved in a deed of trust for a real estate transaction are a:

• Trustor. This is the person whose assets are being held in the trust, also known as the borrower (i.e., you). The title to your home is held by the trust until the loan is paid off. Even so, you remain the equitable owner as long as you keep paying the loan according to the terms outlined in the deed of trust. That means you enjoy all the benefits of being the homeowner, such as the right to live there and gain equity, even though you aren’t the legal title holder.
• Beneficiary. The beneficiary is the party whose investment interest is being protected. Usually, that’s the lender, though it also can be an individual with whom you have a contract.
• Trustee. The trustee holds the legal title of the property while you’re making payments on the loan. Trustees often are title companies, but not always. Once you’ve paid off your loan, the trustee is responsible for dissolving the trust and transferring the title to you.

If you sell the property before it’s paid off, the trustee will use proceeds of the sale to pay the lender the remaining balance (you keep the profits). If you fail to meet your payment obligations and default on the mortgage, the property would go into foreclosure , and the trustee would be responsible for selling the property.

What Is Included in a Deed of Trust

A deed of trust includes many important details about your property, loan and related terms and conditions—much of the same information you would find in your mortgage. Typically, you’ll find the following outlined in a deed of trust:

• The names of the parties involved (the trustee, trustor and beneficiary)
• The original loan amount and repayment terms
• A legal description of the property
• The inception and maturity dates of the loan
• Various clauses, such as acceleration and alienation clauses
• Any riders regarding the clauses outlined

It’s common for a deed of trust to include acceleration and alienation clauses. If you’re delinquent on your loan, it can trigger the acceleration clause—essentially a demand for immediate repayment of the loan. Depending on the terms, this can happen after missing just one payment, though lenders often give a few months of leeway to allow the borrower to catch up on payments. If you fail to do so under the terms outlined in the acceleration clause, the next step is formal foreclosure proceedings.

An alienation clause is also known as a due-on-sale clause and it prevents anyone who buys the property to take on the loan under its current terms. Instead, the alienation clause would dictate that the loan must be paid in full if you sell the property.

Depending on your state, the deed of trust may also include a power of sales clause. This allows for a much faster foreclosure process than if your lender had to involve the state courts in a judicial foreclosure. That said, you won’t be foreclosed on overnight under a power of sales clause; the exact process differs by state and lender. Still, if you’re facing a nonjudicial foreclosure, it can happen in a matter of months. If you want to formally fight the foreclosure, you’ll need to hire a lawyer.

States that allow power of sale foreclosures include: Alabama, Alaska, Arizona, Arkansas, California, Colorado, District of Columbia, Georgia, Hawaii, Idaho, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, North Carolina, Oregon, Rhode Island, South Dakota, Tennessee, Texas, Utah, Washington, West Virginia and Wyoming.

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Deed of Trust Vs. Mortgage

The terms “deed of trust” and “mortgage” are often used interchangeably, but they’re really two different things. That said, there are also some similarities. To review, here are the key ways a mortgage and deed of trust are similar as well as different.

Similarities

• Public record: Both documents are recorded with the county clerk.
• Subject to state law: The exact terms of a mortgage or a deed of trust depend on the local state law.
• Contracts, not loans: Neither document serves as the actual loan agreement; a deed of trust or mortgage is a contract that places a lien on your property and dictates how your lender can repossess the property through foreclosure.

Differences

• Parties involved: A mortgage is an agreement between a borrower and lender, while a deed of trust involves a trustor, beneficiary and trustee.
• Foreclosure type: A mortgage requires a judicial foreclosure, while a deed of trust allows for a nonjudicial foreclosure.
• Foreclosure timeline: Judicial foreclosure on a mortgage can be a lengthy process, while nonjudicial foreclosure through a deed of trust is much faster.

What’s the Advantage of a Trust Deed Over a Mortgage?

If the borrower defaults, a trust deed makes it possible for the lender to sell the property without having to go to court. With a mortgage, the lender has to file a foreclosure claim in court and secure a judge’s approval to sell the property. This can mean a lot of expenses for both the borrower and the lender.

If you are investing in a real estate project, a trust deed also has a few advantages over a mortgage. This is because the investor is considered the lender in the transaction, and their name is recorded on the trust deed as such. The investor can receive interest on their “loan” and the principal is repaid in full once the property has been built.

Warranty Deed Vs. Deed of Trust

Both a warranty deed and deed of trust are used to transfer the title of a property from one person to another. However, the difference between these two contracts is who is protected. As you now know, a deed of trust protects the beneficiary (lender). A warranty deed, on the other hand, protects the property owner.

When a property title is transferred with a warranty deed, ownership goes from the seller (also known as the grantor) to the buyer (also known as the grantee). The warranty deed guarantees that the previous owners, or grantor, had full ownership of the property and right to transfer it. In other words, it promises that you won’t inherit any liens or future claims against the property. It provides peace of mind that you own the property outright once the title is in your name.

Are Trust Deeds a Good Idea?

Trust deeds could be a good idea if you are an investor searching for options to earn passive income, while also being protected via the deed. However, investing in real estate is unpredictable and returns are never guaranteed. A trust deed does not reduce the probability of default or ensure that you will recoup your initial investment.

Consult with a financial advisor or investment professional before going down this route.

Personal finance writer Casey Bond contributed to this article.

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Frequently Asked Questions (FAQs)

What is an assignment of deed of trust.

An assignment of trust deed is necessary if a lender sells a loan secured by a trust deed. It assigns the trust deed to whoever buys the loan (such as another lender), granting them all the rights to the property. It is recorded along with the original, making it a matter of public record.

What happens with the deed of trust after you pay off your mortgage?

Once you pay off your loan, the trustee is responsible for releasing the trust and transferring the title to you. You now have full ownership of the home.

Can you sell a house with a deed of trust?

Yes, you can. However, if you are selling the house for less than the loan amount, you will need the lender’s approval. Once the property is sold, the trustee uses the proceeds to pay the lender what they are still owed. The borrower then gets any money that is left over.

How long does a deed of trust last?

A deed of trust, like a mortgage, typically has a maturity date, which is when the loan must be paid off in full. That date will vary transaction to transaction. Sometimes a deed of trust won’t have a maturity date. In this scenario, state law dictates the number of years a deed of trust lasts, anywhere from 10 to 60 years after it was recorded.

What is a purchase money deed of trust?

A purchase money deed of trust secures the funds used to buy the property. It also gives the buyer priority over any liens or encumbrances against them

Does a deed of trust show ownership?

No. A deed of trust is a legal document that secures a real estate transaction. It only shows that a designated third party holds legal title—i.e. ownership—to your property until you’ve paid it off, according to the terms of your loan.

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Understanding the Assignment of Mortgages: What You Need To Know

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A mortgage is a legally binding agreement between a home buyer and a lender that dictates a borrower's ability to pay off a loan. Every mortgage has an interest rate, a term length, and specific fees attached to it.

Written by Attorney Todd Carney .  Updated November 26, 2021

If you’re like most people who want to purchase a home, you’ll start by going to a bank or other lender to get a mortgage loan. Though you can choose your lender, after the mortgage loan is processed, your mortgage may be transferred to a different mortgage servicer . A transfer is also called an assignment of the mortgage. 

No matter what it’s called, this change of hands may also change who you’re supposed to make your house payments to and how the foreclosure process works if you default on your loan. That’s why if you’re a homeowner, it’s important to know how this process works. This article will provide an in-depth look at what an assignment of a mortgage entails and what impact it can have on homeownership.

Assignment of Mortgage – The Basics

When your original lender transfers your mortgage account and their interests in it to a new lender, that’s called an assignment of mortgage. To do this, your lender must use an assignment of mortgage document. This document ensures the loan is legally transferred to the new owner. It’s common for mortgage lenders to sell the mortgages to other lenders. Most lenders assign the mortgages they originate to other lenders or mortgage buyers.

Home Loan Documents

When you get a loan for a home or real estate, there will usually be two mortgage documents. The first is a mortgage or, less commonly, a deed of trust . The other is a promissory note. The mortgage or deed of trust will state that the mortgaged property provides the security interest for the loan. This basically means that your home is serving as collateral for the loan. It also gives the loan servicer the right to foreclose if you don’t make your monthly payments. The promissory note provides proof of the debt and your promise to pay it.

When a lender assigns your mortgage, your interests as the mortgagor are given to another mortgagee or servicer. Mortgages and deeds of trust are usually recorded in the county recorder’s office. This office also keeps a record of any transfers. When a mortgage is transferred so is the promissory note. The note will be endorsed or signed over to the loan’s new owner. In some situations, a note will be endorsed in blank, which turns it into a bearer instrument. This means whoever holds the note is the presumed owner.

Using MERS To Track Transfers

Banks have collectively established the Mortgage Electronic Registration System , Inc. (MERS), which keeps track of who owns which loans. With MERS, lenders are no longer required to do a separate assignment every time a loan is transferred. That’s because MERS keeps track of the transfers. It’s crucial for MERS to maintain a record of assignments and endorsements because these land records can tell who actually owns the debt and has a legal right to start the foreclosure process.

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Assignment of Mortgage Requirements and Effects

The assignment of mortgage needs to include the following:

The original information regarding the mortgage. Alternatively, it can include the county recorder office’s identification numbers. 

The borrower’s name.

The mortgage loan’s original amount.

The date of the mortgage and when it was recorded.

Usually, there will also need to be a legal description of the real property the mortgage secures, but this is determined by state law and differs by state.

Notice Requirements

The original lender doesn’t need to provide notice to or get permission from the homeowner prior to assigning the mortgage. But the new lender (sometimes called the assignee) has to send the homeowner some form of notice of the loan assignment. The document will typically provide a disclaimer about who the new lender is, the lender’s contact information, and information about how to make your mortgage payment. You should make sure you have this information so you can avoid foreclosure.

Mortgage Terms

When an assignment occurs your loan is transferred, but the initial terms of your mortgage will stay the same. This means you’ll have the same interest rate, overall loan amount, monthly payment, and payment due date. If there are changes or adjustments to the escrow account, the new lender must do them under the terms of the original escrow agreement. The new lender can make some changes if you request them and the lender approves. For example, you may request your new lender to provide more payment methods.

Taxes and Insurance

If you have an escrow account and your mortgage is transferred, you may be worried about making sure your property taxes and homeowners insurance get paid. Though you can always verify the information, the original loan servicer is responsible for giving your local tax authority the new loan servicer’s address for tax billing purposes. The original lender is required to do this after the assignment is recorded. The servicer will also reach out to your property insurance company for this reason.  

If you’ve received notice that your mortgage loan has been assigned, it’s a good idea to reach out to your loan servicer and verify this information. Verifying that all your mortgage information is correct, that you know who to contact if you have questions about your mortgage, and that you know how to make payments to the new servicer will help you avoid being scammed or making payments incorrectly.

Let's Summarize…

In a mortgage assignment, your original lender or servicer transfers your mortgage account to another loan servicer. When this occurs, the original mortgagee or lender’s interests go to the next lender. Even if your mortgage gets transferred or assigned, your mortgage’s terms should remain the same. Your interest rate, loan amount, monthly payment, and payment schedule shouldn’t change. 

Your original lender isn’t required to notify you or get your permission prior to assigning your mortgage. But you should receive correspondence from the new lender after the assignment. It’s important to verify any change in assignment with your original loan servicer before you make your next mortgage payment, so you don’t fall victim to a scam.

Attorney Todd Carney

Attorney Todd Carney is a writer and graduate of Harvard Law School. While in law school, Todd worked in a clinic that helped pro-bono clients file for bankruptcy. Todd also studied several aspects of how the law impacts consumers. Todd has written over 40 articles for sites such... read more about Attorney Todd Carney

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What is a deed of trust?

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The term “ mortgage ” is used whenever a person buys a home with a loan, but it’s not always the right terminology. Some states don’t use mortgages. Instead, they use a document known as a deed of trust, a legally binding contract for a real estate transaction. Though it seems to serve the same purpose, a deed of trust technically is not a mortgage.

That begs the question: What’s the difference between a deed of trust and a mortgage?

Both involve agreements between the lender and the borrower (the homebuyer) that lay out the borrower’s promise to repay the borrowed money (the home loan). And both clearly state that the home serves as collateral for the loan, meaning if the borrower stops repayment the lender has recourse. As attorney Amy Loftsgordon, a legal editor at Nolo, explains it, “By having the borrower sign a mortgage or deed of trust, the lender has a way to get its money back if the borrower doesn’t keep the promise to make the payments — by foreclosing its lien and selling the property to a new owner at a foreclosure sale.”

But a deed of trust adds a third party into the agreement: a trustee, an unbiased third party that holds the property’s title while the loan is being repaid. This setup can make a big difference as to what happens if the borrower defaults.

Anyone buying a home should understand the nuances of a deed of trust vs a mortgage — and which they’re signing, of course. So let’s dive in.

How does a deed of trust work?

To get started, let’s define deed . This is the legal document that shows who has title (ownership) to a piece of property. There are different types of deeds , but here, we’re focusing not on the deed itself but what happens to it.

So, what is a deed of trust? It’s a deed that gets put into a trust. Like a mortgage, a deed of trust agreement obligates the borrower to repay a home loan, with the home serving as collateral if they default. But the difference between a deed of trust and a mortgage lies with who holds the deed during the repayment period.

There are three parties in a deed of trust: the lender, the homebuyer/borrower, and the trustee. The trustee is a third party who plays the role of intermediary for the real estate transaction.

In the deed of trust vs mortgage conversation, this is a key differentiator. Mortgages don’t loop in the third party; the agreement is just between the lender and the borrower.

With a deed of trust, the lender gives the borrower the funds to make the home purchase. In exchange, the borrower provides the lender with a promissory note . The promissory note outlines the terms of the loan and the borrower’s promise (hence the name) to pay. (So, the promissory note is just one component of the overall deed of trust. Specifically, it outlines the borrower’s obligation to repay the loan, in order to keep the home.

At this point, with a deed of trust, the borrower transfers the real property interest to the trustee. (The “real property interest” is simply a term used to describe the right to that real estate property.)

In most cases, the trustee in a deed of trust is a title company or escrow company , though it can be another party such as an attorney or bank.

Deeds of trust and default

Here’s why who’s holding the title matters. Because the trustee holds the interest in the property, the trustee can take action if the borrower fails to make payments on time or fails to follow all that was agreed to in the promissory note.

If the borrower stops paying the loan, for example, the trustee has the legal right to take full control of the property. The trustee’s job is to correct the default and repay the lender. To do this, the trustee may have to sell the home — and in most deeds of trust, it has the power to do that without seeking formal court permission to foreclose on it.

State laws on deed of trusts

“A deed of trust is not recognized by all states,” Kevin Frankel, attorney with Fiffik Law Group, a LegalShield provider law firm, explains. Deeds of trust are used exclusively in 25 states and the District of Columbia; both they and mortgages are allowed in nine states .

In the states that permit both mortgages and deeds of trust, the lender gets to choose which to use — and will probably opt for the deed of trust due to the easier foreclosure proceedings if the borrower defaults. If you have a deed of trust, you’ll usually face a nonjudicial foreclosure — meaning the trustee can just impose it. If you have a mortgage, your lender will need to seek a court judgement to seize the home.

When the lender chooses or is required to use a deed of trust, the rights and processes for the trustee to follow vary by state. In some situations, the trustee merely holds the lien on the property and is given only a few rights in terms of handling defaults on the loan. The terms of the mortgage agreement and promissory note will outline what the ultimate contract requires, so be sure to read the fine print.

Deed of trust vs mortgage

To recap, let’s look at the similarities and differences between a deed of trust and a mortgage.

They both give the lender the right to sell the home through a foreclosure if you default on the loan.” — Amy Loftsgordon Nolo.com Legal Editor

Both deeds of trusts and mortgages are:

• Agreements to exchange home loan proceeds for a borrower’s agreement to repay the loan
• Agreements that use the home as collateral during the repayment period
• Governed by state law
• “Filed with the office that records land records,” Frankel says.

The key differences between a deed of trust and a mortgage are:

• Who holds the home title during the repayment period — With a deed of trust, it’s a third party, while the lender or borrower holds the title with a mortgage, depending on state law .
• The number of parties involved — With a deed of trust, it’s three (borrower, lender, trustee), while a mortgage has just two (borrower, lender).
• What happens if you default —  “With a few exceptions, mortgages are usually foreclosed judicially (through the court system), while deeds of trust are usually foreclosed through an out-of-court (nonjudicial) process,” Loftsgordon says. Judicial foreclosure is a lengthy process that tends to be costly because of legal fees. With a deed of trust, the lender can avoid the courts. Generally, the trustee will sell the house to repay the lender, although they may pursue a deed in lieu of foreclosure .

Deed of trust FAQs

How does a deed of trust impact foreclosure, can a deed of trust be transferred, what is the difference between a deed of trust and promissory note, bottom line.

Anyone buying a home with a deed of trust should know that the home can be foreclosed quickly, without any legal proceeding in a court of law. In other words, there may not be an opportunity to get caught up on the loan.

Homebuyers or people taking on a new home loan should take the time to find out whether they have a mortgage or a deed of trust. In many cases, this will dictate how any legal proceedings will be carried out if the terms of the contract are breached.

To make sure you can afford to make your home loan payments on a long-term basis, you can use this Bankrate calculator .

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Deed of Trust: Definition, Uses

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Table of Contents

Deeds of trust vs. mortgages

How does a deed of trust work, deed of trust by state, deeds of trust vs. warranty deeds.

A deed of trust is a real estate transaction agreement that allows a third-party trustee to hold the property title until the borrower repays the lender in full. The third party in a deed of trust is typically a title company or real estate broker [0] Cornell Law School Legal Information Institute . Deed of Trust . Accessed Jun 1, 2023. View all sources .

Over half of states use deeds of trust instead of mortgages , which involve only two parties. However, in many states, home loans are colloquially referred to as “mortgages,” although they may legally be deeds of trust.

The main difference between a mortgage and a deed of trust is that if you fall behind on loan payments, the property can be foreclosed on more quickly with a deed of trust than with a mortgage.

A deed of trust is not to be confused with a living trust , which is an estate planning tool that helps avoid probate. It also doesn’t transfer ownership of the real property as a property deed does.

Deeds of trust and mortgages are lending agreements that place a lien, or legal claim until debt repayment, on real property. Here’s how they’re similar:

They’re subject to state laws.

Both are public record.

Both allow for foreclosure.

Both are considered contracts as opposed to loans.

However, there are two key differences:

Number of parties involved. A mortgage involves two parties: the lender and the borrower, while a deed of trust involves three parties: the lender, the borrower and the trustee.

Foreclosure type and time. Mortgages typically have to go through a judicial foreclosure, while deeds of trust generally can use a nonjudicial foreclosure process without involving the courts. Because a nonjudicial foreclosure process tends to be faster and less expensive than a judicial one, it usually takes less time and effort to foreclose with a deed of trust than with a mortgage.

As a home buyer, you don’t have the option to choose between a mortgage or a deed of trust, even if you live in one of the nine states that allow both. In those states, the lender chooses which document to use.

A deed of trust works similarly to a mortgage by making a piece of real property the collateral for a loan. This means that if you don’t make your loan payments on time, your lender can foreclose on the property. Unlike a mortgage, though, a deed of trust typically allows for foreclosure without the need to first obtain a court order.

Here’s how the process works:

The trust deed includes a promissory note that spells out the exact terms of the loan including the principal, interest, occupancy, insurance and maintenance requirements. The borrower signs this note, agreeing to repay the borrowed money.

The trustee holds legal ownership of the property or in some states just holds the lien, which is a legal claim to the asset, but has no control over that property unless the borrower doesn’t make their scheduled payments per the terms of the agreement.

While the buyer is making payments, the lender keeps the promissory note. Once the loan is paid off, however, the promissory note is marked “paid in full” and the deed is returned to the buyer. At this point, the buyer will own the property outright.

Requirements to create a deed of trust

A valid deed of trust must always involve three parties:

The borrower, also known as the trustor.

The lender, also known as the beneficiary .

The trustee, which is typically a title company that holds legal title to the real property or, in some states, just holds the lien.

The deed of trust document should contain the following information:

The names of all the involved parties (borrower, lender and trustee).

A description of the property involved.

The original amount of the loan.

Loan inception and maturity dates.

Any fees or riders involved.

What will happen in the event of loan default.

Depending on the nature of the sale, any other relevant details.

The following states (and Washington, D.C.) use deeds of trust instead of mortgages:

California.

Massachusetts.

Mississippi.

New Hampshire.

New Mexico.

North Carolina.

Rhode Island.

Washington.

West Virginia.

Deeds of trust and mortgages are allowed in these states:

South Dakota.

All remaining states use only mortgages:

Connecticut.

New Jersey.

North Dakota.

Pennsylvania.

South Carolina.

A warranty deed is a document required by some lenders before they approve financing. It certifies that the seller is the true owner of the property and has the right to sell it and that there are no outstanding debts, liens, judgments or encumbrances on the property.

A deed of trust is a lending contract, while a warranty deed is offered by a seller to a buyer for the buyer’s protection.

You can deduct your loan interest payments on your income tax return for home mortgages and deeds of trust. To do so, just be sure the property has been recorded as your principal residence in your county records [0] IRS.gov . Publication 936 (2022), Home Mortgage Interest Deduction . Accessed Jun 1, 2023. View all sources .

If you have a loan secured by a deed of trust and your lender sells that trust deed, an assignment of trust deed assigns that deed of trust to the new buyer of your loan (typically another lender). The assignment of deed of trust grants the new loan purchaser all rights to the property and is recorded as public record along with the original deed of trust.

A reconveyance in a deed of trust is a transfer of property (minus the lien) to the borrower from the trustee or the lender. This happens when the borrower has paid off the loan and satisfied the terms of the debt, and it means the lender no longer has an interest in the property.

You can deduct your loan interest payments on your income tax return for home mortgages and deeds of trust. To do so, just be sure the property has been recorded as your principal residence in your county records

On a similar note...

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Mortgage vs. Deed of Trust: What's the Difference?

Mortgages and deeds of trust are two types of legal documents used when buying and selling real estate, especially when obtaining money from lenders to purchase a property. 

Both a mortgage and a deed of trust are necessary, and they serve similar purposes. However, these two legal instruments differ in some key ways—especially in how they work and the legal procedures involved. It’s important for homeowners and lenders to understand how the two differ, so let’s take a closer look at some of the important differences between a mortgage and a deed of trust.

What’s a Mortgage, and How Does It Differ from a Deed of Trust? 

A mortgage is essentially a loan agreement between a borrower and a lender. The purpose of a mortgage is to finance a property. With a mortgage, there are typically two parties involved: the borrower (mortgagor) and the lender (mortgagee). Unlike a deed of trust, there is no trustee involved when signing a mortgage; the lender directly holds the lien on the property. 

A mortgage requires a promissory note and mortgage document. It’s recorded at the Registry of Deeds in the county where you reside. When signing a mortgage, the borrower of the loan retains the equitable title throughout the entire loan term, while the lender holds the legal title until the loan is repaid in full. 

A mortgage generally has fewer administrative costs and fees than a deed of trust. If the borrower defaults, the lender may be required to go through the (often long and complex) judicial foreclosure process to reclaim the property. This may include court proceedings, which can vary from state to state. 

What’s a Deed of Trust, and How Does It Differ from a Mortgage? 

Unlike a mortgage, which only involves two parties, a deed of trust involves three parties : the borrower, the lender (beneficiary), and the trustee. Like a mortgage, a deed of trust requires a promissory note and is recorded at the registry of deeds in the county where you reside. 

Unlike a mortgage, a deed of trust involves a trustee . The trustee holds the legal title on behalf of the beneficiary until the loan is fully repaid, while the beneficiary holds the security interest. This individual has the authority to initiate foreclosure proceedings and sell the property if the borrower defaults.

If the borrower defaults on the loan, a nonjudicial foreclosure process is often carried out, providing quicker recourse for the lender. This process is typically faster and more streamlined than a mortgage foreclosure, but it is still subject to state regulations. 

With a deed of trust , foreclosure proceedings also may involve more administrative costs than a mortgage because of the trustee's role in foreclosure. 

Mortgage vs. Deed of Trust: Similarities

Now that we’ve got an understanding of what each document is, let’s take a look at some of the similarities between them:

• Loan security: The purpose of both a mortgage and deed of trust is to secure a loan, using the property as collateral. If the borrower fails to repay the loan, the lender can initiate foreclosure proceedings to take possession of the property. They can then sell it to recover any outstanding debt.
• Collateralization: A mortgage and deed of trust both require the borrower to use the property as security for a loan. The property's value will help identify the total amount of the loan and financing terms.
• Legal documents: Both are considered legal documents that are recorded in local public records to verify the lender's claim on the property.

Mortgage vs. Deed of Trust: Differences

There are several ways mortgages and deeds of trust differ, some of which we covered above. Here are some direct comparisons. 

Involvement

• Mortgage: Two parties are involved: the borrower (mortgagor) and the lender (mortgagee).
• Deed of trust: Three parties are involved: the borrower (trustor), the lender (beneficiary), and a third party known as the trustee.

Trustee’s Role

• Mortgage: No trustee is involved. The lender has the lien on the property.
• Deed of trust: The borrower conveys the title of the property to the trustee, who holds it in trust for the lender. The trustee can initiate foreclosure proceedings and sell the property if the borrower defaults.

Foreclosure Process

• Mortgage: If the borrower defaults, the lender must go through judicial foreclosure proceedings, which involve filing a lawsuit to obtain a court order to foreclose on the property.
• Deed of trust: The foreclosure process is generally nonjudicial. The trustee can initiate foreclosure and sell the property without legal involvement. 

Title Holding

• Mortgage: The borrower holds the property title during the loan term, while the lender has a lien on the property.
• Deed of trust: The trustee holds the property title on behalf of the lender until the loan is paid back in full. Once the loan is satisfied, the trustee reconveys the title to the borrower.

Start Investing Today

Trust deeds are a great option if you’re short on time or interested in flipping a home quickly. Using a deed of trust can benefit you, allowing you to purchase a property at a discounted price. The ultimate goal of a trust deed is to pay back the lender, so you can purchase the property for a price lower than its listing.

At Val-Chris Investments, we want our clients to have the best possible experience when investing in real estate, commercial, or mixed-use properties. Our team is here to help, whether you’re new to the real estate game or already have an impressive portfolio. We’re a creditable trust deed investment company in California that’s ready to make your dreams a reality. For more information, contact us today .

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How Deeds of Trust Work

Deed of trust vs. mortgage.

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Deed of Trust: Meaning, How it Works, Benefits

Matt Webber is an experienced personal finance writer, researcher, and editor. He has published widely on personal finance, marketing, and the impact of technology on contemporary arts and culture.

Lea Uradu, J.D. is a Maryland State Registered Tax Preparer, State Certified Notary Public, Certified VITA Tax Preparer, IRS Annual Filing Season Program Participant, and Tax Writer.

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A deed of trust (also known as a trust deed) is a document sometimes used in financed real estate transactions, generally instead of a mortgage . Deeds of trust transfer the legal title of a property to a third party —such as a bank, escrow company, or title company—to hold until the borrower repays their debt to the lender.

Although deeds of trust are less common than they once were, some 20 states still mandate the use of one when financing is involved in the purchase of real estate. States where trust deeds are common include Alaska, Arizona, California, Colorado, Idaho, Illinois, Mississippi, Missouri, Montana, North Carolina, Tennessee, Texas, Virginia, and West Virginia. A few states—such as Kentucky, Maryland, and South Dakota—allow the use of both trust deeds and mortgages.

Key Takeaways

A deed of trust is a document used in real estate transactions. It represents an agreement between the borrower and a lender to have the property held in trust by a neutral and independent third party until the loan is paid off.

• Deeds of trust are used as an alternative to a mortgage, but there are differences between these arrangements.
• A mortgage involves only two parties: the borrower and the lender. A deed of trust adds an additional party, a trustee, that holds the home’s title until the loan is repaid.
• There are also different foreclosure arrangements related to these two documents.

Deeds of trust are used in financed real estate transactions: that is, when someone borrows money to buy real estate. During such a transaction, a lender gives the borrower money in exchange for one or more promissory notes linked to a deed of trust.

The deed of trust performs an important role in these transactions: The deed transfers legal title to the real property to an impartial trustee , typically a title company, escrow company, or bank, which holds it as collateral for the promissory notes. The equitable title—the right to obtain full ownership—remains with the borrower, as does full use of and responsibility for the property.

This state of affairs continues throughout the repayment period of the loan. The trustee holds the legal title until the borrower pays the debt in full, at which point the title to the property becomes the borrower’s. If the borrower defaults on the loan, then the trustee takes full control of the property.

A deed of trust can be used as an alternative to a mortgage. A mortgage involves two parties: a borrower (or mortgagor) and a lender (or mortgagee). In contrast, a deed of trust involves three parties: a borrower (or trustor), a lender (or beneficiary), and the trustee.

Deeds of trust can be compared with mortgages. Deeds of trust and mortgages are both used in bank and private loans for creating liens on real estate—that is, establishing a property as collateral for a loan. Because of this, and contrary to popular usage, a mortgage is not technically a loan to buy a property; it’s an agreement that pledges the property as collateral for the loan.

A deed of trust is different from a mortgage in a couple of ways:

First, a mortgage involves two parties: a borrower (or mortgagor) and a lender (or mortgagee). In contrast, a trust deed involves three parties: a borrower (or trustor), a lender (or beneficiary), and the trustee. The trustee holds title to the property for the lender’s benefit; if the borrower defaults , then the trustee will initiate and complete the foreclosure process at the lender’s request.

Second, mortgages and trust deeds have different foreclosure processes:

• With a mortgage, the lender must pursue a judicial foreclosure . This is a court-supervised process enforced when the lender files a lawsuit against the borrower for defaulting on a mortgage. The process is time-consuming and expensive.
• In contrast, a deed of trust lets the lender commence a faster and less expensive nonjudicial foreclosure, bypassing the court system and adhering to the procedures outlined in the trust deed and state law. If the borrower does not make the loan current, then the property is put up for auction through a trustee’s sale.

Is a deed of trust the same as a mortgage?

No. A mortgage only involves two parties: the borrower and the lender. A deed of trust adds an additional party, a trustee, who holds the home’s title until the loan is repaid. There are also different foreclosure arrangements related to these two documents.

What is the advantage of a deed of trust over a mortgage?

A deed of trust has a crucial advantage over a mortgage from the lender’s point of view. If the borrower defaults on the loan, then the trustee has the power to foreclose on the property on behalf of the beneficiary.

Are trust deeds a good idea?

Trust deeds can be a valuable aid to financial stability, but they are not right for everybody. They are best suited to people who have a regular income and can commit to regular payments. This is due to the stricter, faster foreclosures available with deeds of trust vs. regular mortgages.

Deeds of trust are used as an alternative to a mortgage, but there are differences between these arrangements. A mortgage only involves two parties: the borrower and the lender. A deed of trust adds an additional party, a trustee, who holds the home’s title until the loan is repaid. There are also different foreclosure arrangements related to these two documents.

Rocket Lawyer. “ Which States Allow Deeds of Trust? ”

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Deed of Trust vs. Mortgage

Though it is common to hear mortgage and deed of trust used interchangeably, they are two different types of contracts. A mortgage is a direct contract between two parties — the borrower and the lender. The borrower owns title to the property and pledges it to the lender as security for the loan. With a deed of trust, the borrower does not own the title to the property. Instead, a third party, known as a trustee, has a temporary hold on the title and will only hand over the title to the borrower, known as the trustor, when the loan is repaid in full. This difference between mortgages and deeds of trust becomes very important if a borrower defaults on the loan and the lender needs to foreclose . In the U.S., deeds of trust are much more common than mortgages.

Comparison chart

Foreclosures

Mortgages require the use of a judicial foreclosure process , while deeds of trust are used in states that allow non-judicial foreclosure. This makes sense because when the borrower defaults on a mortgage, the lender needs to first wrest ownership of the property from the borrower before foreclosing on the property. This change of ownership requires a judge to issue a court order, which can be a slow and cumbersome process for a lender.

With a deed of trust, the borrower does not own the title in the first place, so a default on the loan allows the trustee to sell the property to repay the lender. No judicial process is required for a trustee to begin a foreclosure .For this reason, when lenders have the option to choose between a mortgage contract and a deed of trust, they will often choose a deed of trust.

The following video explains the difference between a deed of trust and a mortgage very clearly:

Rights of Redemption

"Right of redemption" refers to the legal right borrowers have to try to reclaim property they are losing — or have already lost— to foreclosure. To reclaim their property, they must repay debt and often the principal balance of the original loan. [1]

Though it may seem as though borrowers have few rights and protections in the states that favor deeds of trust, these states actually tend to have more liberal rights of redemption than mortgage-only states do.Some states will even allow borrowers to try to make good on their defaulted home loan for up to a year after the property is foreclosed upon and sold at auction, but this varies significantly by state.Such leniency in deed of trust states can be extremely helpful to those who have been through a foreclosure but difficult for anyone who has bought a foreclosed home at auction.

Prevalence in U.S. States

Over 30 states and the District of Columbia allow deeds of trust in real estate. As deeds of trust are so much more appealing to lenders, this means trust deeds are much more common than mortgages in the majority of U.S. states. There are, however, a few mortgage-only states, like Florida, New York, and Vermont.

• Wikipedia: Deed of trust (real estate)
• Wikipedia: Mortgage loan

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Using a deed of trust

A deed of trust is used to secure a loan on real property. Learn how this legal document can be an easy way for a lender to collateralize a loan.

Find out more about property owners

by   Brette Sember, J.D.

Brette is a former attorney and has been a writer and editor for more than 25 years. She is the author of more than 4...

Read more...

Updated on: February 1, 2023 · 2 min read

Understanding a deed of trust

Deed of trust vs. mortgage, wraparound mortgages, assignment of a deed of trust.

A deed of trust is a legal document that essentially puts a piece of property up as collateral for a loan. Although sometimes used in place of a mortgage, a deed of trust functions differently and makes foreclosing on the property simple for the lender.

A deed of trust is used with a loan when real property is used to secure the loan. The deed gives the lender the right to receive the proceeds of the sale of the property at auction if the loan is not paid. Unlike a warranty deed , which immediately transfers the owner's rights in the property to the buyer, a deed of trust is not intended to transfer title to a property unless the loan is unpaid.

A deed of trust has three parties:

• trustor: the property owner borrowing the money
• lender: the person or company making the loan, sometimes called the beneficiary
• trustee: the person or company (often an escrow company ) who holds legal title to the real property under the deed and has the responsibility of selling the property at auction if the trustor doesn't make the required payments on the loan

A mortgage and a deed of trust are both used to secure a loan, which is a separate document. One difference between these two legal documents is that a deed of trust has three parties (trustor, lender, and trustee) while a mortgage has only two (lender and borrower). In the case of a mortgage, if a borrower does not pay the associated loan, the property must be foreclosed on in court so that the lender can sell it. A deed of trust, on the other hand, does not require a court process. The trustee can sell the property without a court order if the trustor does not pay. Because of this, a deed of trust allows for a faster and less expensive process if the loan is not paid.

A wraparound mortgage, also known as an inclusive deed of trust, is used when there is an existing mortgage on the property that remains in place. For example, Sandra has a mortgage on her home. Marco buys the home with the promise to pay her the monthly mortgage amount she owes, which Sandra then uses to pay the mortgage in her name. This arrangement is made legally binding with a deed of trust. If Marco doesn't pay Sandra, she forecloses and gets the property back without a court proceeding. So in essence, Marco's loan wraps around the existing mortgage to cover it, hence the name for this type of deed of trust.

Like any deed, a deed of trust can be transferred from one person to another, similar to the way a bank can sell a loan to another bank. The document that transfers a deed of trust, called an assignment of a deed of trust, must be filed in the county clerk's office to be valid.

A deed of trust is a convenient way to avoid a court proceeding if a loan is not paid. This type of nonjudicial foreclosure is quick and inexpensive for the person or company lending the money. You can prepare a deed of trust yourself or you can use an online service provider .

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REAL ESTATE LAW

What is a deed of trust with assignment of rents.

By Rebecca K. McDowell, J.D.

February 24, 2020

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• What Is a Corporate Assignment of Deed of Trust?

A deed of trust is a written instrument granting a lien on real property. While slightly different from a mortgage, they are functionally nearly the same. Some states use deeds of trust instead of mortgages while others allow both. Either way, a deed of trust used to secure a commercial loan may also include an assignment of rents , which gives the lender the right to collect rental income from the property in the event of default.

What Is a Deed of Trust?

A ​ deed of trust ​ is a document that a borrower may execute in favor of a lender to give the lender a lien on a parcel of real estate. Like a mortgage, a deed of trust secures the loan by allowing the lender to foreclose on the real estate if the loan isn't paid (although in some states that use deeds of trust, a foreclosure isn't necessary).

​ Read More: ​ How to Research a Deed of Trust

Deed of Trust vs. Mortgage

A deed of trust is very similar to a mortgage in that it pledges property to secure a loan. A mortgage, however, is simpler; the property owner executes a mortgage document in favor of the lender, and the lender records the mortgage and has a lien , but the property owner still holds title to the property.

A deed of trust, on the other hand, grants an actual ownership interest in the property to a trustee, who holds the property in trust for the lender until the obligation is paid.

What Is an Assignment of Rents?

An ​ assignment of rents ​ is extra security granted to a lender that provides a commercial loan. Commercial loans are loans that are not made for family or household use but for business purposes.

When a borrower grants a mortgage or deed of trust on real estate and the real estate has tenants who pay rent, the lender can demand an assignment of rents in addition to the mortgage or deed of trust.

The assignment of rents means that if the borrower defaults on the loan, the lender can step in and collect the rents directly from the tenants.

Deed of Trust With Assignment of Rents

A deed of trust may contain an assignment of rents clause for that same property. In addition to a clause in the deed of trust, the lender may also require the borrower to execute a separate document called an "Assignment of Rents" that is recorded with the register of deeds.

Whether the assignment is written in the deed of trust only or is also contained in a separate document, it is binding on the borrower as long as its language is clear and sufficient to create an assignment under state law.

Exercising an Assignment of Rents

When a lender decides to collect the rents on the borrower's property, the lender is said to be exercising the assignment of rents. The lender cannot exercise the assignment unless the borrower has defaulted on the loan. Once that happens, the lender can send a written demand to the tenant or tenants, requiring that the rents be paid directly to the lender.

Absolute Assignments of Rents

An assignment of rents most likely will contain language that the assignment is an ​ absolute assignment ​. In most states, an absolute assignment gives the lender an immediate interest in the rents. This means that the lender actually owns the rents and is simply allowing the borrower to collect them on license until an event of default. Once a default occurs, the lender can intercept the rents without taking any court action; a letter to the tenants is all that's needed.

Every state's laws are different; the law of the state where the property is located will dictate how a lender can exercise an assignment of rents.

​ Read More: ​ What Is the Difference Between a Deed and a Deed of Trust?

• Companies Incorporated: Mortgage States and Deed of Trust States
• American Bar Association: Commercial Real Estate FAQs
• Schulte Roth & Zabel: Sixth Circuit Upholds Assignment of Rents to Secured Lender
• Findlaw: California Civil Code - CIV § 2938
• Legal Beagle: What Is the Difference Between a Deed and a Deed of Trust?
• Legal Beagle: How to Research a Deed of Trust
• Legal Beagle: Documents Needed to Refinance a Mortgage
• Legal Beagle: How to File a Property Lien

Rebecca K. McDowell is a creditors' rights attorney with a special focus on bankruptcy and insolvency. She has a B.A. in English from Albion College and a J.D. from Wayne State University Law School. She has written legal articles for Nolo and the Bankruptcy Site.

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Mortgage, Home Loan or Deed of Trust: Know the Difference

Home loan vs. mortgage.

The term “ home loan ” refers to the actual money a lender loans you (and co-owners , if there are any) so you don’t have to pay cash for your home purchase. Like any other loan, there are terms and conditions that apply on how you must repay the money. A home loan is a secured loan, which means your house itself is the collateral.

A “ mortgage ” legally refers to the document by which a homeowner transfers to a lender the actual interest in the real estate itself to secure the repayment of the loan debt. This document comes into play if you are unable to make payments on your home loan, because it’s the legal proof the lender has the right to foreclose on your home and sell it in order to have the loan repaid.

The mortgage document creates a lien on your property recorded at your county courthouse, usually. The lien must be paid in full before you can transfer ownership of your home to anyone else.

Mortgage vs. Deed of Trust

In addition to understanding the difference between a home loan and a mortgage, you need to know the definition of a deed of trust, which is an alternative to a mortgage used by many states.

While a mortgage is a document defining the legal relationship between you and your lender, some states instead use a deed of trust as the document that must be recorded to show there’s a legal claim on your property. A deed of trust involves three parties rather than just you and your lender: in addition to the “trustor” (you, the homeowner) and the “beneficiary” (the lender), a “trustee”—typically an attorney or a title company representative—must also sign the deed.

The trustee holds temporary title to your property until the lien is paid in full and must be a neutral third party who won’t favor either you or your lender in the case of a dispute. As a borrower, you don’t have a choice as to whether to record the lien against your home with a mortgage or a deed of trust: that decision is entirely up to your state laws. In general, whether you have a mortgage or a deed of trust won’t matter at all. The only time this makes a difference to you is if you face foreclosure.

If your lien is recorded as a mortgage, then a foreclosure will typically be required to go through the state court system. If your lien is recorded as a deed of trust, then the trustee has the legal power to sell your home if you haven’t made payments. Your lender has to provide proof to the trustee and ask for foreclosure proceedings to begin. The trustee must follow state laws and the instructions in the deed, but typically a foreclosure in these circumstances will proceed much faster than one going through the court system.

As long as you repay your home loan, either your mortgage or your deed of trust will be canceled once you make your final payment.

Michele Lerner writes about real estate, personal finance, and business news. She is the author of two books about home buying.

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Assignment of Deed of Trust Vs. Deed or Grant Deed

A grant deed is used to transfer ownership rights in real estate.

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More Articles

•   1. What Is the Difference Between the Deed of Absolute Sale and the Deed of Assignment?
•   2. What is an Assignment of Trust Deed?
•   3. Warranty Deed Vs. Deed of Trust

Property rights in real estate are valuable and invariably the subject of a legal document called a deed. To transfer ownership rights in real estate, a grant deed is commonly used. When a loan is obtained to purchase real estate, a deed of trust is often used to give the lender rights in the real estate to secure repayment of the loan. An assignment of deed of trust is used by a lender when it sells its loan secured by a deed of trust.

Property Deeds

Real estate transactions that involve the transfer of property rights require a deed to ensure the transfer of rights is effective. All deeds are written documents that include a description of the affected real estate and the names of the persons whose property rights are being transferred. Although not legally require to make the transfer effective, deeds are routinely recorded with the local government office responsible for recording real estate transactions. A recorded deed gives the public notice regarding property rights in a particular parcel of real estate, such as ownership, easements and liens. Recording a deed can also protect a property owner against future claims that his property rights are invalid.

A grant deed is used to transfer real estate ownership from one person to another. The transfer of ownership can be for a full parcel of real estate or just a portion of the real estate. Grant deeds are most often used in real estate sales between an unrelated buyer and seller. However, a grant deed may also be used to transfer ownership as a gift. When a grant deed is used, the person transferring ownership rights is promising to the person receiving ownership rights that these rights have not been previously transferred to anyone else.

Deed of Trust

A deed of trust is used in a three-party transaction involving the repayment of a debt. The first party is a real estate owner or buyer who is borrowing money that can be used for any purpose, but is typically used to fund the purchase of the real estate. The second party is the lender, such as a bank or other financial institution, providing the funds to the borrower. To secure repayment of the loan, the borrower signs a deed of trust which transfers legal title to his real estate to a third party, called the trustee, who can be any individual or company that does not have any interest in the loan or real estate. The borrower continues to have the beneficial use of the property with the trustee only taking action if the borrower defaults on his loan. If the lender and borrow cannot work out a resolution of the default, the lender can instruct the trustee to conduct a foreclosure sale of the real estate and deliver the sale proceeds to the lender to repay the loan.

Assignment of Deed of Trust

Loans that are secured by a deed of trust often include repayment terms that extend for several years or more. From a lender’s perspective, a loan secured by a deed of trust is a fairly safe investment when the value of the real estate is sufficient to repay the loan in the event of a borrower's default. This aspect makes existing loans secured by a deed of trust suitable for sale from the original lender to another lender during the life of the loan. To complete the sale of a loan secured by a deed of trust, the original lender uses a document called an assignment of deed of trust to transfer its rights in the deed of trust to a new lender.

• FindLaw: What Are Property Deeds?
• Cornell University Law School Legal Information Institute: Deed of Trust
• California Department of Real Estate: Trust Deed Investments -- What You Should Know?

Joe Stone is a freelance writer in California who has been writing professionally since 2005. His articles have been published on LIVESTRONG.COM, SFgate.com and Chron.com. He also has experience in background investigations and spent almost two decades in legal practice. Stone received his law degree from Southwestern University School of Law and a Bachelor of Arts in philosophy from California State University, Los Angeles.

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A Deed of Trust can be Assigned Apart from the Note, and that often occurs just before a foreclosure. But What Does That Mean? Not Much, the Deed of Trust is Inseparable from the Note

Notes and Deeds of Trust are often assigned to different parties. The question posed is what happens if the Deed of Trust alone is assigned ? A typical assignment of the Deed of Trust alone will purport to assign “all beneficial interest under that certain Deed of Trust dated xyz..” But the long-established law in California is clear: the beneficial interest under a Deed of Trust is held by the party who holds the Note (or is entitled to enforce it), without regard to the assignment of the Deed of Trust .

The subject was again addressed by the California Courts in Domarad v. Fisher & Burke, Inc. (1969) 270 Cal. App. 2d 543 ). The Court noted that a deed of trust is a mere incident of the debt it secures and that an assignment of the debt carries with it the security. “The deed of trust is inseparable from the debt and always abides with the debt, and it has no market or ascertainable value, apart from the obligation it secures and that a deed of trust has no assignable quality independent of the debt, it may not be assigned or transferred apart from the debt, and an attempt to assign the deed of trust without a transfer of the debt is without effect. (emph. added)”

In Stockwell v. Barnum ((1908) 7 Cal. App. 413) the Court stated that this Code “is wholly foreign to deeds of trust, which, instead of creating a lien only, as in the case of a mortgage, passes the legal title to the trustee, thus enabling him in executing the trust to transfer to the purchaser a marketable record title. It is immaterial who holds the note. The transferee of a negotiable promissory note, payment of which is secured by a deed of trust whereby the title to the property and power of sale in case of default is vested in a third party as trustee, is not an incumbrancer to whom power of sale is given…” Stockwell @ 417.

And more recently “it has been established since 1908 that this statutory requirement that an assignment of the beneficial interest in a debt secured by real property must be recorded in order for the assignee to exercise the power of sale applies only to a mortgage and not to a deed of trust.” ( Calvo v. HSBC Bank USA, N.A. (2011) 199 Cal.App.4th 118 , 122.)

Why is that? There is a technical difference between the two security instruments. The mortgage only involves two parties –the borrower who grants the power of sale to the lender, and the lender who then holds the beneficial interest in the mortgage plus the power of sale. A deed of trust, on the other hand, involves three parties: the borrower, the lender, and the trustee who is granted conditional title to the encumbered property as well as the power of sale.

Thus, the deed of trust may thus be assigned one or multiple times over the life of the loan it secures. But if the borrower defaults on the loan, only the current beneficiary may direct the trustee to undertake the nonjudicial foreclosure process. “[O]nly the ‘true owner’ or ‘beneficial holder’ of a Deed of Trust can bring to completion a nonjudicial foreclosure under California law.” Yvanova v. New Century Mortgage (62 Cal. 4th 919) (2016)

An Alternative The Commercial Code also provides a mechanism for recording an assignment of the security if there has been an off-record transfer of the note but no recorded assignment of the deed of trust or mortgage. The buyer of the note can record a copy of the transfer agreement whereby the note was acquired, together with a sworn statement that a default has occurred, and in that event may proceed with a nonjudicial foreclosure. ( Cal. Com. Code, § 9607, subd. (b))

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• Warranty Deed vs Deed...

Warranty Deed vs Deed Of Trust: A Guide for Homebuyers

• Jun 27, 2024

Real estate transactions involve documents that can seem complex at first glance. Two such documents, the warranty deed, and deed of trust, are essential to understand when buying or selling property. 

While they serve different purposes, they are fundamental in the transfer and holding of property rights. This article will delve into warranty deed vs deed of trust.

Understanding Property Deeds

A property deed is a legal document that transfers the ownership of real estate from one party to another. It contains the names of the old and new owners and a detailed description of the property. 

Deeds ensure that the transfer process happens smoothly and legally. They play a critical role in the world of real estate, as they are the proof of each party’s rights to the property.

What is a Warranty Deed?

A warranty deed is a document that guarantees clear ownership of the property to the buyer. It states that the property is free from any liens or claims.

Definition and Key Characteristics

The defining feature of a warranty deed is its guarantee that the grantor holds a clear title to the property. This deed protects the buyer by ensuring that the seller is legally responsible for any title problems.

Components of a Warranty Deed

A typical warranty deed will include precise details about the transaction. It lists who is handing over the property and who is receiving it. It will describe the property in full, so there is no question about what is being transferred.

Types of Warranty Deeds

There are mainly two types: general and special. The general warranty deed offers the broadest level of protection, covering the property’s entire history. The special warranty deed only covers the period during which the seller owned the property.

Advantages of a Warranty Deed

The primary benefit of a warranty deed is the peace of mind it provides the buyer. As well as the guarantee of a clear title, the buyer also has legal options if issues arise later.

Limitations and Considerations

While a warranty deed offers many protections, it is not all-encompassing. There may be geographical limits on where it applies. It is essential to understand any possible exceptions that might be included.

What Is a Deed of Trust?

In contrast, a deed of trust is a document often used in place of a traditional mortgage .

A deed of trust involves three parties: the borrower, the lender, and a trustee. The borrower transfers the title to the trustee as collateral.

Components of a Deed of Trust

The trustee, typically a bank or a legal entity, holds the title until the borrower repays the loan. The deed must name the parties involved, describe the property, and specify the terms.

Advantages of a Deed of Trust

One of the main advantages of a deed of trust is the streamlined foreclosure process. If the borrower defaults, the trustee can sell the property without a court proceeding.

The neutrality of the trustee is vital. The deed of trust is not available everywhere in the United States; it is state-specific.

Warranty Deed vs Deed of Trust: Key Differences 

Understanding the differences between these two documents is crucial.

Legal Implications

A warranty deed and a deed of trust serve different legal purposes. A warranty deed focuses on the transfer of a clear title, while a deed of trust relates to the financing of the property purchase.

Parties Involved

The number of involved parties differs. A warranty deed involves the buyer and the seller, while a deed of trust adds the trustee into the mix.

Usage and Occurrence

The use of a warranty deed or deed of trust can depend on the state where the transaction takes place. In some areas, a deed of trust is more common.

Foreclosure Process

The methods by which a lender can foreclose on a property differ. With a deed of trust, the process tends to be faster and less complicated.

Choosing the Right Deed for Your Transaction

Your situation and location will influence which deed is right.

Factors to Consider

Consider the level of protection you need, the legal requirements in your state, and your lender’s preferences.

Professional Advice

Real estate attorneys can provide invaluable advice. It’s wise to consult with one before making any decisions.

Frequently Asked Questions

What happens if there’s a defect in the title under a warranty deed.

If a title defect appears, the buyer can seek legal remedies from the seller, who guaranteed a clear title.

Can a deed of trust be used outside of the United States?

Deeds of trust are specific to certain jurisdictions and may not be recognized internationally.

Is it possible to convert a deed of trust to a traditional mortgage?

Yes, converting a deed of trust to a traditional mortgage involves refinancing and other legal steps.

What are the risks associated with being a trustee in a deed of pilgrimage?

Trustees must act impartially, follow the deed’s terms, and avoid any conflict of interest. Failure to do so can lead to legal consequences.

By now, you should have a better grasp of warranty deeds and deeds of trust. Remember that real estate laws vary by state, and always seek professional guidance to ensure your interests are protected.

The choice between a warranty deed and a deed of trust involves evaluating legal protections, the parties involved, geographic usage, and foreclosure processes. Each has its place in real estate transactions, and understanding the differences is essential.

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