Recently, I was asked by a first-time buyer the difference between a Deed of Trust and Mortgage. This is a very intelligent question to ask regarding loan documents. Therefore, I thought I would write a blog on the subject!
Differences Between a Deed of Trust and Mortgage
Let’s first look at a Mortgage. A Mortgage is an agreement between you and the lender. A Mortgage is sometimes referred to as a Mortgage Note and this agreement allows the lender to take back the possession of your home if you fail to make your payments.The borrower is obligated to pay back the Mortgage and the preset payments are thoroughly disclosed.
A Deed of Trust has three different parties involved. The borrower who is also called the trustor, the lender, and the trustee. The trustee is the entity who holds legal title. This is often the title company. When a Deed of Trust is being executed a borrower will agree to pay the lender who will then transfer security interest. The security interest will be transferred to a third-party trustee. Should the borrower stop paying the mortgage, the trustee would then begin to take control of the property. The trustee then will sell it on behalf of the lender.
The Deed of Trust is one of the most important loan documents to be signed at closing. Because the Deed of Trust conveys title to the property it will also be publicly recorded at the County Recorder’s office. Some important information that the signer should verify on the Deed of Trust are: the monetary amount being financed, start date of the loan and the maturity date, and the name of the trustee.