Deed of Trust vs Mortgage—Are They the Same Thing?
It’s not uncommon for homeowners to confuse the terms “Mortgage” vs. “Deed of Trust,” but in fact, they are two quite different things. It’s always good to understand exactly what your loan documents mean. However, if you’re facing a foreclosure, it’s even more crucial for you to know your rights and responsibilities.
What’s a Mortgage
The mortgage is the agreement between you, the borrower, and the lender, or mortgagee. In some cases, the mortgage is referred to as the note, but it’s the same thing.
Either way, it’s a broad term covering all the details of the loan you take out to buy real estate and acknowledging that if you fail to pay the loan as agreed, the lender has the right to reclaim your home.
What is a Mortgage Promissory Note?
A mortgage promissory note establishes the terms of the home loan. It includes the interest rate, the amount borrowed, when payments are due, and when payments are considered late.
This note is what most borrowers consider the mortgage. This document contains all the important information about the loan—not only terms but also the granular details of the specifics of your mortgage. The county clerk’s office records the promissory notes along with the Deed of Trust.
What’s a Deed of Trust?
When you sign the mortgage papers to close on your house, you’ll sign the Warranty Deed, which transfers ownership of the property to you, and a deed of trust, or trust deed, that secures the loan.
A deed of trust brings a third party to the equation, a trustee. The trustee is simply an entity, such as a title or escrow company, holding the security interest in the mortgage for the loan term. In the event of a foreclosure, the trustee is the point person during that process—it’s not the lender.
Mortgage vs. Deed of Trust—What are the Similarities?
There are three important similarities between a mortgage and a deed of trust.
Both the mortgage note and the deed of trust (DoT) are ways the property is used as loan collateral. One key difference is that the note only requires two parties, the lender and the borrower, while the DoT requires three: a beneficiary, or lender; a trustor, or borrower; and a trustee, a neutral third party.
Both are fundamental agreements whereby the borrower promises to repay a set amount of money at a specific interest rate and regular intervals until the debt is repaid. The lien on the property is how the lender ensures repayment. One key fact here is that both mortgages and DoTs need each other to be valid.
Deeds of trust and mortgages allow the lender to initiate the foreclosure process to reclaim the property if the loan goes into default.
How a Mortgage and Deed of Trust are Different
The biggest difference between the two is how the foreclosure is managed, and that difference comes down to a single clause in a standard California trust deed contract. Deeds of trust in California contain a power of sale clause that permits the trustee to sell the house at the lender’s request if the borrower defaults (fails to make payments) on the mortgage loan.
In California, as in most states, there are two kinds of foreclosure, judicial and nonjudicial. The power of sale clause determines which type of foreclosure can occur.
Because most trust deeds in California contain the power of sale clause, most foreclosures are nonjudicial—the courts are not actively involved. This is the preferred foreclosure method for lenders, as it is less expensive and faster. Although there isn’t a “preferred” way to be on the short end of a foreclosure, the nonjudicial route does have two benefits for the borrower.
- Lenders do not pass the foreclosure costs—legal fees—on to the borrower, so that’s less than the borrower ultimately owes the lender. When money is tight, these few hundred dollars could matter.
- Lenders give up the right to pursue the borrower for a deficiency judgment in this type of foreclosure. This means that if the house sale does not cover the balance owed and legal fees, the lender can’t collect that money from the borrower.
If there is no power of sale clause in the trust deed, then the trustee files a lawsuit to sell the house at auction on behalf of the lender. This is a much more expensive process involving going to court to get the sale approved, which means adding more attorneys fees and court costs.
There is a benefit to borrowers in a judicial foreclosure, which is the right to redemption—allowing the borrower to purchase the house back from the buyer up to one year from the auction date. If the borrower chooses to exercise this right, they also are responsible for any deficiency owed, court costs, and what the buyer paid for the house. This is rare in any state, not just California.
Offercity Offers a Better Alternative
Borrowers facing foreclosure haven’t had any really good options to avoid the process until now. Offercity will buy your house as-is, and the entire transaction only takes a couple of weeks. Allowing you to take back control of the foreclosure process, which usually takes about four months, and start rebuilding your life.
Offercity Moves Quickly to Buy Your House
With Offercity, you have the advantage of multiple offers from local investors, so you’re still getting a price that makes sense for your property. What you won’t find are repairs, fees, or agent commissions at any point throughout the process. This is a true as-is sale with a transparent offer and closing process.
In addition, we understand that your timeline is personal. Maybe you’re ready to move and need a shorter closing process, or perhaps you’re still making decisions and need to spend additional time in your home. Closing with Offercity can range from 10 to 60 days, depending on your needs and preferences.
Contact us to get started.