What is the main distinction between a mortgage and a deed of trust?

The main distinction between a mortgage and a deed of trust lies in the structure of the agreements and the involvement of parties. A mortgage is a direct agreement between the borrower and the lender. In this arrangement, the borrower pledges the property as collateral for the loan, and if the borrower defaults, the lender has the right to take possession of the property through foreclosure.

In contrast, a deed of trust introduces a third party, known as the trustee. In this setup, the borrower transfers the legal title of the property to the trustee, who holds it for the benefit of the lender until the borrower has repaid the loan. This means that in the event of a default, the trustee can initiate the foreclosure process on behalf of the lender, often allowing for a more streamlined foreclosure process compared to a mortgage.

This fundamental difference—where one involves only the lender and borrower and the other adds a trustee into the mix—is what sets mortgages and deeds of trust apart. Understanding this distinction is crucial for comprehending how real estate financing operates in different contexts, particularly in states where deeds of trust are common.