Mortgages, trust deeds, and contracts of sale are three commonly used legal instruments to finance real estate transactions, and about which there may be some confusion. Mortgages and trust deeds (or deeds of trust) are similar in many respects.
In the use of either, there are two documents involved: a promissory note to pay, and a mortgage or trust deed that makes collateral of the property to secure the loan. In the case of a mortgage, two parties are involved: the borrower (mortgagor) and the lender (mortgagee).
The mortgage does not convey title but in effect gives the lender a lien on the property as security for the loan. A trust deed involves three parties: the borrower (trustor), the lender (beneficiary), and the trustee (usually a title company or bank).
The title to the property is conveyed to the trustee by the borrower as security for debt to the lender. When the borrower has fulfilled the terms of the loan and paid back the amount owed to the lender, the title is reconveyed to the borrower.
If the borrower defaults on the loan, the trustee disposes of or liquidates the property at public sale in order to satisfy the debt. The use of mortgages and trust deeds varies by state. Most states permit the use of one or the other. A few states permit the use of both. The terms mortgage and trust deed are used interchangeably in the ensuing discussion.
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Written by Jessy
Topics: Financing