Trust Deed vs Mortgage

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21 Aug, 2024

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The primary difference between a trust deed vs mortgage is the foreclosure process. Trust deed involves the loan's non-judicial foreclosure in a speedier, cheaper way. A mortgage requires judicial foreclosure of the loan, which is time-consuming and costly. The execution of the trust deed involves three parties - the lender/the beneficiary, the borrower/the trustor, and the escrow company, also called the trustee. In contrast, the mortgage deed comprises two parties- the lender, or the beneficiary, and the borrower. The United States of America uses trust deeds more commonly than a mortgage.

Difference Between Trust Deed And Mortgage

Trust deeds are promissory notes formalized between the lender, borrower, and the trustee for taking a loan over the borrower's property in a non-judicial manner.
A mortgage is the buying or refinancing property by the borrower from a lender using a promissory note containing terms and conditions of repayment and default of the loan duly noted in county records.
Thus, mortgage, and trust deeds are promissory notes legally enforceable in a court of law.
Mortgage and trust deeds have the basic difference in the means of foreclosure of loan where it is non-judicial, faster, and cheaper, in the former and judicial, time taking, and costly in the latter.

Comparative Table

Here is a table to depict trust deed vs mortgage

Particulars	Trust Deed	Mortgage
Definition	It refers to a promissory note in the shape of a contract between three parties- the lender, the borrower, and the trustee where the trustee becomes the title holder of the borrower's property.	It refers to a promissory note in the form of a contract between a lender and the borrower to create a lien on the borrower's property.
Foreclosure	The foreclosure process requires an out-of-court settlement between the beneficiary, trustee, and trustor.	The foreclosure process must go through the court for full and final settlement.
Time	It is usually less time-consuming for the stakeholders.	It is a more time-consuming process for the stakeholders.
Cost	Since a non-judicial process is involved, it is an affordable loan process against the property.	The legal costs involved make it a costlier process loan.
Legal procedure	The foreclosure requires no judicial intervention and the property used for the loan is put up for sale immediately through the trustee's authority. The trustee is whole and sole of the property and pays the sale proceeds to the lender and the borrower as per the status of the loan and agreement contained therein.	For the foreclosure to happen, the lender has to file a legal suit in court against the borrower upon defaulting their loan repayment. In addition, default on loan leads to a court-supervised auction that may or may not give the full title of the lender on the mortgaged property.
Prevalence	The trust deed is more prevalent due to its benefits to the lender and borrower.	The mortgage is not so common in the United States.
Redemption rights.	The right to redeem after the sale proceeds through auction in the trust deed is not present to the borrower.	The right to redemption of property is retained with the borrower even after the sale of a mortgaged property via auction for a long duration until the borrower can pay off the debts and reclaim it.

What Is Trust Deed?

A trust deed is a legal agreement between a lender and borrower for a loan. In this agreement, the lender transfers the title of the borrower's property to an escrow company acting as a trustee. Usually, the trust deed involves three parties: the lender, the borrower, and the third party acting as trustee. The trust deed is more prevalent in the real estate sector.

After the trust deed formalizes the loan over the property, the right to the property remains with the borrower. Therefore, the borrower can use and is responsible for that particular property. However, the borrower's property gets transferred to the trustee in case of default of the loan. As a result, the trustee can sell the property to clear the loan. The transfer of the property owner has no further right of redemption over his property after the sale of property by the trustee to close the loan on default by the borrower.

The whole legal formality, from signing the trust deed by the lender, borrower, and trustee to the property sale by the trustee, is done out of court affordably and speedily. So, a trust deed is best suited for people who can make regular payments as they have a regular income.

What Is Mortgage?

A mortgage is done to either buy a new home or refinance the existing home from the lender by the borrower. It is done via a legal promissory note with the lender’s right to take possession of the property in case of default. After the beneficiaries formalize the mortgage, the said piece of purchased or refinanced property has to be marked for lien in the county records of the USA.

The mortgage is a lien on the property. So, it happens between the borrower of the loan for the property and the lender only. Here, the borrower acts as a future buyer or loanee, and the lender acts as an escrow or mortgage company.

If the borrower repays the mortgage loan for buying the property, he gets the legal ownership of the mortgaged property. However, if the borrower fails to repay the mortgage loan for the new or refinanced home, the lender has the right to file a legal suit in the court for possession and sale of the property. Moreover, the right to redemption of the property remains with the borrower. Therefore, the borrower can get back his mortgaged property after completely repaying the loan.

Trust Deed vs Mortgage Infographics

Trust Deed vs Mortgage Backed Securities

The types of asset-backed security include mortgage-backed security. A single or a collection of mortgages secure them. A group of investors buy the aggregated mortgages and then securitize or package the loans together for easy investment. At the same time, a trust deed is a legal document. So, it gives an individual or organization money managing rights or informs about how to lend property.

Trust Deed vs Mortgage Bond

An individual bond or pool of bonds secures mortgage bonds, protecting the lenders. They make real estate investing easy for borrowers at an affordable rate as real property and real estate back them. In contrast, the lender and the borrower exchange money for promissory notes linked with the trust deed in real estate transactions.

Similarities

Lenders and borrowers use both these agreements for financial purposes in banks.
In real estate, lenders and borrowers use the trust deed and mortgage to establish the property as collateral for borrowing private loans.
Both give the lender a right to foreclose if the borrower defaults on the loan’s repayment.