Both a mortgage and a deed of trust are commonly referred to as €mortgages.€ This is misleading because there are important differences between the two documents. When it comes to your money and signing contracts it is best that you know what those differences are. Both are security instruments in a real estate transaction. Whether you are buying or selling a house, land or any other realty, you probably are going to see either a mortgage or a deed of trust.

Let's start by looking at how a deed of trust and a mortgage are the same, what they have in common. Both make the borrower's property collateral for the loan and both, give the lender power to foreclose if the debt is not paid.

Now, let's take a look at the differences.

The parties involved in a mortgage are the mortgager (borrower) and mortgagee (lender); in a deed of trust (also called a trust deed) there are three parties the trustor (the borrower) the beneficiary (the lender) and the trustee. This extra party, the trustee, handles the foreclosure process if the borrower defaults. In a mortgage, the foreclosure process goes through the courts; this is called a judicial foreclosure. A deed of trust foreclosure is a non-judicial foreclosure. Reinstatement of a mortgage can happen before the decree of judgment whereas; reinstatement of a trust deed has to happen before the trustee's sale. Redemption of a mortgage can be possible after the sheriff's sale if certain requirements are met. In a trust deed, however, there is no post-sale redemption. Lenders of mortgages can seek deficiency judgments to collect outstanding debt that is not paid by the foreclosure sale; lenders of trust deeds are not given this same option. Mortgages use the term mortgaging clause and trust deeds use the term granting clause.

A mortgaging clause gives the lender a lien on the property if the borrower defaults on terms of the loan. It does not transfer title to the lender it only gives the lender the right to foreclose the lien. This is why a mortgage must go through judicial foreclosure. A lender for a deed of trust gets title (because of the granting clause) to the property. If you default on a deed of trust; they take control of your property much more easily. They save time, lawyers' fees and the chance of you redeeming your property. For this reason deed of trust are becoming very popular among lenders. In states, like California, deeds of trust are more widely used than mortgages. It is important to notice here that when a borrower goes to sign the loan documents, they are rarely thinking about the differences in the foreclosure process. As many people have recently learned, if you are facing foreclosure, you could use some extra time to save your home.

The variances in the foreclosure process are the main difference between the two documents and should be looked at carefully.

A mortgage foreclosure goes typically like this:

filing of lis pendens notifying of junior lien holders judge reviews case and issues a decree of foreclosure reinstatement still possible until auction property sold at public auction (sheriff's sale) redemption sometimes possible during right of redemption period winner of auction bidding gets certificate of sale until the right of redemption period is over. auction winner gets sheriff deed and full control of the property any excess (after debt is paid) proceeds go to the original borrow.

A deed of trust foreclosure would compare to it like this:

no lawsuit is filed notice of default notice of sale reinstatement possible up until the trustee's sale no right of redemption period winner of trustee's sale gets a trustee's deed which eliminates all of the original borrower's right to the property excess proceeds go to borrower
In the end, if a borrower does not pay the debt to the lender, the lender takes the property. The differences between deeds of trust and mortgages can make a big difference to you, or very little difference, depending on your personal situation. That is why it's important for you to look at your specific finances, income and plans for the future. Use your common "cents" and it will payoff.