Can I assume the seller’s mortgage to get their lower interest rate?

Sometimes you can assume a mortgage. An assumable mortgage lets you take over the seller’s rate and terms. Most conventional lenders prohibit assumptions. Many FHA and VA loans permit them if you qualify and the lender or agency approves. Expect full underwriting (income, credit, DTI) and fees. At closing, the lender typically releases the seller from liability.

What’s the difference between lender’s title insurance and owner’s title insurance?

Lender’s policy (required by most lenders) protects the lender’s lien priority and balance. Owner’s policy (optional but recommended) protects your equity against covered title defects (undisclosed heirs, recording errors, prior liens, etc.). They’re separate policies, often paid once at closing.

How do escrow (impound) accounts really work—and what causes “escrow shortages”?

Your lender adds money to each monthly payment to cover property taxes and homeowners insurance. If taxes or premiums rise, your escrow can come up short. When that happens, you either pay the shortage in a lump sum or spread it over the next 12 months, and your monthly payment may increase.

Can I use a Quitclaim Deed to quickly transfer my home to a spouse or family member?

A quitclaim deed transfers whatever ownership you hold and provides no warranties. Use it for non-sale transfers (estate cleanups, marital changes). A quitclaim doesn’t remove an existing mortgage or deed of trust and might trigger a due-on-transfer clause. Check lender approval and local recording rules before you file.

When would a Warranty Deed be preferred over other deed types at closing?

In most non-standard sales, buyers prefer a warranty deed because the seller guarantees clear title and agrees to defend against covered claims. A quitclaim deed offers no title guarantees and appears more often in non-standard transfers among family members.

What is a Contract for Deed (land contract) and why do some buyers use it?

A contract for deed lets you buy directly from the seller with installments. The seller keeps legal title until you finish paying. This option can help buyers who don’t qualify for traditional loans, but default rules and timelines differ from mortgages and deeds of trust. Check your state’s laws, and make sure the contract clearly states responsibilities for taxes, insurance, and maintenance, plus what happens on default or early payoff.

Deed of Trust vs Mortgage – What’s the Difference?

Last updated October 3, 2025

The difference between a Deed of Trust vs mortgage is crucial in understanding home financing options. Both serve as legal agreements that secure a home loan. While they may seem similar, the key distinction lies in how they handle foreclosure and the parties involved in the transaction.

Most buyers finance a home with a loan—fixed-rate or adjustable-rate mortgages, or government-backed options like FHA and VA. However, regardless of the type of loan, the primary way to secure financing is through a home loan.

When borrowing money to purchase a home, the borrower must provide the property itself as collateral. Borrowers create this security interest through a deed of trust or a mortgage. If the borrower fails to make payments, the lender has a legal claim to the property.

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Deed of Trust

In a Deed of Trust, the borrower (trustor) conveys legal title to a neutral trustee, who holds it for the lender (beneficiary) until the borrower pays the debt in full.

In case of non-payment, the third-person (trustee) has the power to initiate foreclosure proceedings to sell the collateral in a public auction. The trustee applies the sale proceeds to pay the creditor (beneficiary).

So the parties in a deed of trust are:

Trustor (Debtor)
Trustee (Neutral Third-Party)
Beneficiary (Creditor)

A promissory note is a crucial document that serves as evidence of the borrower’s obligation to repay a loan or debt. The trust property typically secures the promissory note and serves as collateral for the loan. In the event of non-payment, the trustee has the authority to initiate foreclosure proceedings to recover the owed money by selling the property.

Consequently, a Deed of Trust plays a critical role in the home financing process, providing both security for the lender and a pathway for the borrower to obtain necessary funds to purchase their home.

In a Deed of Trust, the parties divide title into two parts: legal title and equitable title. The legal title is the formal ownership of the property, while the equitable title is the right to use and benefit from the property. The trustee holds legal title, and the trustor (borrower) keeps equitable title.

Registration of Trust –

Recording a deed of trust gives the public constructive notice and promotes transparency in property ownership. This principle is a cornerstone of the Torrens System, a legal framework designed to establish clear and indisputable property titles.

Proper recording in the designated registry safeguards the rights of all parties involved in the trust agreement. For example, when the trustor transfers land to a neutral trustee, recording the transfer publicly affirms the beneficiary’s interest and makes the trust legally recognized and enforceable against third parties.

This process, known as registration or recording, involves entering a notation in the certificate of title. The recorder lists the registration book’s exact volume and page number where it files the record. If you claim an interest in registered land based on an implied or constructive trust, you generally must file a sworn statement with the appropriate registry to establish your claim.

How is the Deed of Trust Created?

You can create a trust through various means, including express and implied trusts, as well as through co-ownership.

The trustor—or the parties—create an express trust by clearly expressing intent. While specific wording is not necessary, the intention to create a trust must be unequivocal. However, if a trust pertains to real estate, parol evidence is generally inadmissible to prove such.
- An express trust must include the names of the trustor (borrower), trustee, and beneficiary (lender), the loan amount, property description (legal description), the terms of the loan and repayment, and a power of sale clause (for foreclosure in case of default).

Implied trusts come into being by operation of law. Several situations create implied trusts—for example, when one party pays for the property but another takes title. Another occurs when land passes by succession and someone places legal title in another person’s name. Acquisition of property through mistake or fraud results in an implied trust. If someone registers land through fraud, the named titleholder holds it only as a trustee.

Co-ownership functions like a trust: each co-owner acts as a trustee for the others.

How is a Deed of Trust Recorded?

The Deed of Trust should be recorded in the county where the property is located. The borrower (trustor) needs to present the document to either the County Recorder’s Office, County Clerk, or Register of Deeds. The fees for recording differ by state and county.

Once recorded, the Deed of Trust becomes part of public land records.
Registration acts as formal notification of the lender’s security interest in the property.
The borrower (trustor) retains possession but the lender (beneficiary) holds a lien.

The act of recording or registration serves as a constructive notice to all persons affecting the land subject of the trust. If not recorded, the mortgage still remains binding between the parties.

It’s worth noting that documents, like certificates of title, do not convey land or encumbrances. It is the act of registration that conveys ownership or affects the land concerning third parties.

How are Payments Handled in a Deed of Trust?

The borrower repays the lender through monthly installments, which typically include:

Principal – the original loan amount
Interest – the lender’s profit on the loan
Escrow (if applicable) – property taxes and homeowner’s insurance collected by the lender

Payments continue until the loan is fully repaid or foreclosure occurs due to default. If a borrower misses payments, the lender may offer a grace period and charge late fees. Repeated missed payments can lead to a notice of default.

After a state-specific waiting period, the lender can direct the trustee to initiate foreclosure proceedings, resulting in a public auction where the property is sold to recover the debt.

What Happens When the Loan is Repaid?

When the debtor pays off the debt in full, the lender issues a Deed of Reconveyance. This Deed is then recorded with the county recorder’s office to officially clear the land title.

Mortgage

In a mortgage agreement, a borrower secures financing from a lender—typically a bank or financial institution—to purchase a home. This agreement serves as a legal contract that ties the loan to the property. It ensures the lender’s financial interest is protected.

As an ancillary contract to the loan, the mortgage grants the lender a security interest in the home. If the borrower fails to meet repayment obligations, the lender has the legal right to reclaim the property. In cases of prolonged non-payment or default, the lender can initiate foreclosure. This legal process allows them to take ownership of the home to recover the outstanding debt.

Mortgage agreements outline essential terms and conditions, including interest rates, repayment schedules, and additional fees. These terms provide borrowers with a clear framework to manage their financial obligations effectively.

Understanding State Laws in Real Estate Transactions

When considering real estate transactions, it is important to understand specific state laws. Factors such as the state’s foreclosure laws, the structure of property taxes, and the general approach to real estate financing all play a crucial role in determining the appropriate method of financing a property.

In a mortgage, there is no trustee. Instead, the mortgagor offers a lien on their property as security for the debt. This arrangement ensures that the lender (mortgagee) has a claim on the property should the borrower (mortgagor) fail to fulfill the obligations of the loan.

What Happens When a Debtor Defaults on a Deed of Trust?

When a debtor (mortgagor) defaults on their loan obligations, it is essential for the lender (mortgagee/beneficiary) to understand how to enforce their rights effectively.

Foreclosure proceedings become valid only after the borrower defaults or fails to respond to a formal demand for payment. Foreclosure serves as the primary legal remedy for lenders to recover outstanding debt by selling the collateral property.

There are two main types of foreclosure: judicial foreclosure and nonjudicial (extrajudicial) foreclosure.

Judicial foreclosure requires a court order to sell the mortgaged property. The court grants the borrower a specific period to repay the debt following the entry of judgment. If the borrower fails to do so, the property is sold at a public auction. To legally transfer ownership from the debtor to the purchaser, the court must confirm the sale.
Nonjudicial foreclosure is a faster and more streamlined process that allows the lender to recover the loaned amount without court intervention, provided the deed of trust or mortgage includes a power of sale clause. This method significantly reduces the time and cost associated with foreclosure proceedings.

(1) Foreclosure Process Under a Deed of Trust

A Deed of Trust typically includes a power-of-sale clause, granting the trustee the authority to initiate nonjudicial foreclosure if the borrower defaults on the loan. This clause allows the trustee to proceed with the foreclosure process without court intervention, ensuring a more efficient resolution for the lender. The proceeds from the sale of the property are then applied to satisfy the outstanding debt.

The trustee’s primary role is to manage and, if necessary, liquidate the asset on behalf of the beneficiary (lender) in the event of the borrower’s default. In some cases, the trustee may be designated as the trustor’s attorney-in-fact, enabling them to sell the property extrajudicially when the trust is created to secure an obligation.

For the sale to be legally valid, the seller must either be the rightful owner of the property or be duly authorized by the owner. The trustee must operate within the scope of their authority and in compliance with applicable laws to ensure the foreclosure is enforceable.

(2) Judicial Foreclosure Under a Mortgage

A mortgagee may satisfy the debt through an extrajudicial foreclosure just like that of a deed of trust. But a judicial foreclosure is another option.

Court-supervised or judicial foreclosure proceedings typically involve the following steps:

Filing of a complaint that initiates a judicial foreclosure.
If the court deems the complaint is well-founded, it will issue a court order for repayment. This period varies from 90 days to 120 days from the entry of judgment, depending on the jurisdiction.
If the mortgagor fails to pay within the specific period, the property is sold to the highest bidder in public auction.
When the court confirms the sale, this court confirmation divests all the rights of all the parties and vests the right in the purchaser. The confirmation retroacts to the date of the auction sale. No redemption is allowed after such confirmation.
The judgment is executed as provided by state law and the parties cannot alter the prescribed procedure.

Does Your State Use a Deed of Trust or a Mortgage?

Here’s a detailed examination of the preferences for financing instruments across different states in the country. The table below provides an overview of the preferred instruments and foreclosure types in each state. The varying needs and preference of each state serve as the primary factor.

Where Do You Check Your State’s Property Laws and Land Records?

To better understand how financing preferences align with state-specific regulations, it is important to examine the governing laws concerning property mortgages, trusts, and real estate transactions.

To learn more about your state’s laws regarding property mortgages and trusts, you can visit your state website. For property tax laws, check under the State Department of Revenue. For real estate information, check under the Department of Real Estate.

If you need a research database, consider visiting FindLaw (www.findlaw.com) to access state-specific laws, or Justia (www.justia.com) for free legal resources by state.

For summaries of property laws, you might also want to check out the Legal Information Institute (LII) at Cornell Law School (www.law.cornell.edu).

Government Websites for Verification

To verify real estate laws and regulations, you can consult the following official government websites:

— U.S. Department of Housing and Urban Development (HUD) – www.hud.gov
*Covers federal housing policies, FHA loans, and fair housing regulations.*

— Consumer Financial Protection Bureau (CFPB) – www.consumerfinance.gov
*Provides information on mortgage laws, lending regulations, and consumer rights protections.*

— Federal Housing Finance Agency (FHFA) – www.fhfa.gov
*Regulates Fannie Mae, Freddie Mac, and the Federal Home Loan Banks.*

— Public Access to Court Electronic Records (PACER) – www.pacer.gov
*For federal court cases involving real estate law.*

Pros and Cons of a Deed of Trust and Mortgage

Pros and Cons of Deed of trust and Mortgage

Now you should know the purpose and differences of these two forms. The table below summarizes the main points at a glance.

	Pros	Cons
Deed of Trust	— Faster foreclosure process (beneficial for lenders). — Trustee helps ensure neutral administration. — Lower court involvement, reducing legal costs.	— Less borrower protection in case of default. — Limited ability to challenge foreclosure in some states. — Lesser protection for the borrower (lender can foreclose quickly).
Mortgage	— More legal oversight. — More protection for the borrower as court involvement can delay foreclosure.	— Slower foreclosure proceedings. — Higher cost of legal fees for the lender.

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