What's the Difference Between a Mortgage and Deed of Trust?

Depending on where you live, you likely either signed a mortgage or a deed of trust when you took out a loan to purchase your home.

In this article you'll learn the difference between these two documents and how they relate to the foreclosure process.

The Promissory Note: Basically an IOU

To fully understand the difference between a mortgage and a deed of trust, you must first understand promissory notes.

Homebuyers usually think of the mortgage or deed of trust as the contract they're signing with the lender to borrow money to purchase a house. But that's actually not the case. It's the promissory note that contains the promise to repay the amount borrowed.

While a promissory note is basically an IOU that contains the promise to repay the loan, the mortgage or deed of trust is the document that pledges the property as security for the loan. It is the mortgage or deed of trust that permits a lender to foreclose if you fail to make the monthly payments or breach the loan contract in some other way.

What Is a Mortgage?

Often, people refer to a home loan as a “mortgage,” but a mortgage is not actually a loan. The mortgage is a contract between you and the lender that creates a lien on the property. Certain states use mortgages, while others use deeds of trust.

Mortgage Terminology

There are two parties to a mortgage:

• the mortgagor (the borrower) and
• the mortgagee (the lender).

Mortgage Transfers

Mortgage transfers between banks are common. When a mortgage is transferred from one party to another, it should be documented and typically is recorded in the county records. The document used to transfer a mortgage from one mortgagee to another is called an assignment of mortgage.

Mortgage Foreclosures

The mortgage gives the mortgagee the right to sell the secured property through the foreclosure process if the mortgagor doesn't make the payments or breaches the mortgage in another way. Judicial foreclosures, which must go through the state court system, are typical in states that have mortgages as the security instrument.

What Is a Deed of Trust?

A deed of trust, like a mortgage, pledges real property to secure a loan. It is used instead of a mortgage in certain states.

Deed of Trust Terminology

A deed of trust involves three parties:

• the trustor (the borrower)
• the lender (sometimes called a "beneficiary"), and
• the trustee. (The trustee is an independent third party that holds “bare” or “legal” title to the property. The main function of a trustee is to sell the property at public auction if the trustor defaults on payments. Learn more about the duties of a foreclosure trustee.)

Deed of Trust Transfers

Like mortgages, when a deed of trust is transferred from one party to another, an assignment is typically is recorded in the county records. (Transfers of mortgages and deeds of trust are both commonly referred to simply as “assignments.”)

Deed of Trust Foreclosures

Nonjudicial foreclosures are common in states that use deeds of trust. In a nonjudicial foreclosure, the lender can foreclose without going to court so long as the deed of trust contains a power of sale clause. State law lays out the procedural requirements for nonjudicial foreclosures.

Nonjudicial foreclosures tend to be much quicker than judicial foreclosures. (To learn more, see our articles Timeline for a Nonjudicial Foreclosure and Timeline for a Judicial Foreclosure.)

How to Determine if You Have a Mortgage or a Deed of Trust

The differences between a mortgage and a deed of trust affect homeowners only when foreclosure is an issue. To find out whether a mortgage or deed of trust was used to secure your home loan, you can:

• look at the documents you received when you closed escrow on your house
• contact your loan servicer, or
• go to your local land records office and pull up the recorded document. (Sometimes these records are available online.)

To learn which foreclosure process is commonly used in your state, check our Key Aspects of State Foreclosure Law: 50-State Chart or talk to a local attorney.