Traditional Mortgage v. Deed of Trust
When looking to purchase real estate, you actually have an option beyond a traditional mortgage, called a Deed of Trust. Essentially, a Deed of Trust and a mortgage serve the same purpose: holding the title of a property from the property owner until the loan is repaid in full. However, there are some key differences between the two.
Number of Interested Parties
When you receive a mortgage, there are only two parties involved: you (the borrower) and the lender.
With a Deed of Trust, there is a third party involved, a trustee, which holds onto the title of the home until the loan is fully repaid. If the borrower cannot repay the loan, the trustee (often an escrow company) is responsible for starting the foreclosure process.
What Happens When You Can’t Pay
In the case of a mortgage, if you cannot make your payments, the foreclosure proceedings must go through the court. This is called a judicial foreclosure and is recumbent upon the lender filing a lawsuit against the borrower. It is a costly proposition for both parties.
For a Deed of Trust, you may participate in a non-judicial foreclosure and, therefore, bypass the courts. This process is dictated by both state laws and the terms denoted in the Deed of Trust.
A non-judicial foreclosure is often quicker than a judicial one and much less expensive for all parties involved.
It’s important to note that not all states allow both Deeds of Trust and mortgages. Some states allow one but not the other, and a handful of states allow both. If you are interested in a Deed of Trust, first make sure your state allows it by checking this list.