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Real Estate Article Series
Differences Between Mortgage & Deed Trusts
Most
of us think of our home loan as a mortgage, when that isn’t
particularly true. When a borrower agrees to
pay a lender a certain amount of money, under certain conditions,
the borrower will sign a promissory note. A lender will then
require the borrower to sign a mortgage, as a security tool
to give the lender a legal form of security. A mortgage is
a written document to protect the lender’s interests in your
property. Therefore, a mortgage is not a loan.
A mortgage is between two parties, you the “mortgagor” and
your lender. The mortgage is a document that creates
a lien on your property that is entered into public records
to serve
as the lenders security for that debt. Possession cannot be
transferred to another party until you, as the borrower, pay
the debt to release the lien. Only you have all the rights
of ownership to your property, even if your loan is secured
with a mortgage.
Only
if the borrower defaults on their mortgage will the lender
have the right to protect their interests and foreclose on
the property in order to recover funds. When a mortgage is
used as the lenders security, foreclosure will usually go through
the judicial foreclosure process through the court system that
may take up to four months. Mortgages are used as security
tools in more than half of the states in the U.S., while other
states may use a deed of trust. Both the mortgages and the
deed of trust, often serves the same purpose, but with some
significant differences.
Like the mortgage, a deed of trust is entered into public
records to put a lien on your property. There are three
parties involved with a deed of trust: you, as the “trustor,”
the lender
as the “beneficiary” and a “trustee,” who is a third party
that holds a temporary title until the lien is paid. The trustee
holding the temporary title, should be a neutral party that
does not favor the trustor or the lender, if problems should
arise. These third parties acting as neutral trustee’s can
be attorneys, an escrow company or title insurance companies.
Under no circumstances can the third party, or trustee, take
over your property.
The deed of trust will only be removed when the debt to the
lender is paid. Only then will the will the trustee issue a
release of the deed that should be recorded at the county recorder’s
office and made available to the public that the loan has been
paid in full and that the lender interests in the property
have come to an end.
The
difference between a deed of trust and a mortgage will
only affect home owners when foreclosure becomes an issue. This is when the trustee has the authority to sell your home
when your loan becomes delinquent. It is up to the lender to
provide the trustee with proof of the delinquency and to request
foreclosure proceedings to begin. The trustee must then proceed
as allowed by law and as it is dictated in the deed of trust.
The process may bypass the court system to make a much less
expensive and quicker way to go for the lender during a foreclosure.
A
deed of trust and a mortgage can also differ during foreclosure. Depending on where you live, state law will have to determine
how a foreclosure will be handled. Normally, a deed of trust
allows for a speedier foreclosure. When the borrower defaults
on a loan, the lender gives the deed of trust to the trustee
to sell the property. A mortgage is normally requiring a judicial
foreclosure, which may take longer. Properties may not be foreclosed
upon until all rules are followed and notices have been sent.
Borrowers cannot choose which way their loan is secured, whether
it’s by a mortgage or a deed of trust, this is all determined
by what state you live in or are buying in. It’s very important
to have a complete understanding of the type of lien that will
secure the debt of your home. This should all be explained
to you thoroughly by your lender or trustee. Do your homework
and ask questions before signing any documents. Borrowers must
protect themselves as the lenders and other companies do.
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SolveYourProblem.com : 2007
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