How Does a Mortgage Differ from a Deed of Trust?

Usually, individuals call home loans a “mortgages,” however a mortgage is not in fact a loan agreement. They promissory note will includes the promise to repay the amount your borrowed to Purchase a home. A “mortgage” is a legal agreement among you and the lender creating a lien on the home. Many states utilize mortgages for creating the lien, whereas others utilize deeds of trust or some other likewise-sounding instrument. Mortgages or deeds of trust provides the lender the right to foreclose on the home when you fail to make your monthly payments or are in violation of the loan agreement some other way. Whereas mortgages and deeds of trust are comparable since they are both agreements where a borrower puts the title up for real estate as collateral for the loan, these legal tools do come with differences. For example, mortgages and deeds of trust vary in the parties involved and, usually, how the foreclosure method works.

What are Mortgages?

Subject to where you reside, you probably signed a mortgage or a deed of trust when you took a loan out to buy the home. With mortgages, the involved parties that enter the contract are:

• the mortgagor – the borrower
• the mortgagee – the lender

Mortgage Transfers

Overview: Mortgage transfers are a common practice between financial institutions and entities. This process involves the authentication and recording of the transfer in county records. The documentation employed for this transfer is known as an “assignment of mortgage.” Role of MERS: The Mortgage Electronic Registration System, Inc. (MERS) plays a significant role in facilitating the assignment procedure. Often designated as a candidate for the lender in mortgage transactions, MERS acts as an agent for the loan owner. It tracks the mortgage’s transfer between different financial institutions without holding a beneficial interest in the promissory note. Assignment Process: Once a loan is assigned to MERS, it can be bought and sold multiple times without additional recording of assignments. It’s not uncommon for mortgages to be designated to MERS at some point in their life cycle. However, it’s important to note that in many cases, an assignment out of MERS’ name may be required before initiating foreclosure proceedings.

Mortgage Foreclosures

Right to Foreclose: The mortgage provides the loan owner with the right to sell the property through foreclosure if the mortgagor fails to make payments or breaches the loan contract. Judicial foreclosures, mandated by state court systems, are prevalent in states where mortgages serve as the security instrument. Some states, like Michigan and Alabama, employ non-judicial foreclosures, allowing lenders to foreclose out of court based on mortgage contract terms and state laws.

Deed of Trust Foreclosures

Non-judicial foreclosures are typical in states that utilize deeds of trust. Lenders are able to foreclose without heading to court when the deed of trust contains a power of sale stipulation. State law details the procedural requirements for non-judicial foreclosures. Non-judicial foreclosures have an inclination to be a lot faster than judicial foreclosures.

What Is a Deed of Trust?

A deed of trust, like mortgages, promises real property when securing a loan. This document is utilized instead of a mortgage in many states. Whereas a mortgage involves of 2 parties, a deed of trust involves:

• the trustor – the borrower
• the lender – occasionally known as a “beneficiary”, and
• the trustee

The trustee is an impartial 3rd party that retains “legal” or “bare” title to the property. The trustee’s main function is to sell the property at public auction when the trustor defaults on their payments. Many States Utilize Documents Other Than Mortgages or Deeds of Trust Rather than mortgages and deeds of trust, a couple of states utilize different, comparable-sounding documentation for loan transactions. In the state of Georgia, for instance, the most typically used contract that provides a lender a security interest in property is known as a “security deed.”

Deed of Trust Transfers

Similar to mortgages, when deeds of trust are transferred from one individual to another, an assignment is typically recorded in county records. The transferring of mortgages and deeds of trust are equally called “assignments.”

How to Discover if There’s a Mortgage or a Deed of Trust

To discover if there was a mortgage or if a deed of trust got utilized in the securing of your home loan, you are able:

• examine the documentation you got when you closed escrow on the home
• get a hold of the loan servicer, or
• go to a local land record office near you and bring up the recorded documentation. Occasionally, these records are accessible online.

Source:

1. Amy Loftsgordon, A. (2020, December 15). What’s the difference between a mortgage and deed of trust? Retrieved April 08, 2021, from https://www.nolo.com/legal-encyclopedia/whats-the-difference-between-mortgage-deed-trust.html