While a mortgage and a deed of trust do work similarly, it’s important to know there are significant differences between the two. These differences are especially important in the case of foreclosure,
The biggest difference between the two are the amount of parties involved in each contract. In a mortgage, there are just two parties: the borrower, and the lender. In a deed of trust, however, there are three: a borrower, a lender, and a trustee. In a traditional mortgage, whether fixed rate or variable, the borrower holds the title to the property, though the home is still collateral in the mortgage loan. In a deed of trust, the trustee temporarily holds the title on the property and hands it over to the borrower once the loan is repaid in full.
A mortgage and a deed of trust will only really affect the homeowner should the homeowner default on their loan and have to foreclose. When a homeowner defaults on their loan, the lender then has the right to sell, or foreclose on, the home in order to make back the debt they are owed. With a fixed rate or variable mortgage, the lender must file a lawsuit and go through judicial foreclosure before they can sell the house.
In this way, a mortgage will work in the borrower’s favour should the house be foreclosed on. Once a foreclosure lawsuit is filed, it will usually take a couple months to go through. The lender will also send a foreclosure notice, giving the homeowner advance warning and a chance to contest the lawsuit. This will give the homeowner time to look for another place to live. Additionally, this will give the homeowner a chance to file any legal defenses against the foreclosure.
With a deed of trust however, a non-judicial foreclosure can be used. This means that the property can be foreclosed on without any lawsuit or legal process. This works in the lender’s favour as non-judicial foreclosures tend to be a lot quicker than judicial foreclosures.
The homeowner should still get a notice for a non-judicial foreclosure; however, they will have to act fast. Because there is no court involved, a non-judicial foreclosure can happen quickly.
If you are unsure whether you have a mortgage or a deed of trust for your home, you can check the following documents:
Land record document
You can also contact your mortgage provider, and they should be able to find out what kind of loan you have.
For any further questions related to mortgages or deeds of trust, contact one of our mortgage experts today!