What Is the Difference Between a Mortgage and a Deed of Trust?

15 Jan What Is the Difference Between a Mortgage and a Deed of Trust?

Everyone knows what a mortgage is–it’s the document giving a bank collateral for the loan used to buy your home and letting it foreclose if you don’t pay. But here in Maryland (and a number of other states, like California), we don’t see mortgages very often. Instead, lenders use something called a “Deed of Trust”.

What’s the difference between a mortgage and a deed of trust?

To explain, it’s important to understand the way mortgages and deeds of trust (or DOTs) deal with the title to your home. In some states, a mortgage actually gives the lender title to the house, and the borrower–you–gets legal ownership back only after the mortgage is paid off. In other states, the mortgage only creates a lien on the property, and you keep title, with the lien being removed after the mortgage is paid off.

There are two parties to a mortgage, the lender (bank) and the borrower (homeowner). In a DOT, there are three: the lender, the borrower and a trustee. The trustee actually holds legal title to the property for the benefit of the lender until the loan is paid, so neither the bank nor you are the legal owner while the DOT is in effect. (You have what is called “equitable title” to the house, which gives you the use, benefits and enjoyment of the property.)

Why would a lender use a DOT instead of a mortgage? One reason is tradition. A Maryand lender uses a DOT to make a home loan, in part, because everyone else in Maryland does. A Florida lender uses a mortgage for the same reason. But the main reason is speed. Speed in foreclosure, that is. Generally, DOTs allow for a faster foreclosure time than the judicial foreclosure required with a mortgage.

Be careful not to confuse a deed, which transfers title and is evidence that you own real estate, with a Deed of Trust, which is used to provide collateral for a loan and allows foreclosure if you don’t pay.

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Brett Weiss, a senior partner at The Weiss Law Group, LLC, represents people and businesses in all phases of bankruptcy. He has experience in complex individual Chapter 7, Chapter 11, and Chapter 13 bankruptcy cases, and in Chapter 11 small business restructuring and reorganization. Mr. Weiss lectures nationally on bankruptcy issues. He has testified before the Federal Bankruptcy Rules Committee, the Consumer Financial Protection Bureau, and has twice testified before Congress on bankruptcy and credit issues. Brett Weiss is the co-author of Chapter 11 for Individual Debtors, and has written Not Dead Yet: Bankruptcy After BAPCPA, for the Maryland Bar Journal, as well as hundreds of blogs for the Bankruptcy Law Network. With his colleague, Daniel Press, he recorded a 13-hour basic bankruptcy training series, and leads intensive three-day Chapter 11 training boot camps. Mr. Weiss has received international media attention in connection with his work. He was interviewed by Barbara Walters on The View, has appeared on the Today Show, Good Morning America, ABC News with Peter Jennings, the Montel Williams Show, National Public Radio, AARP-TV, the BBC World Service, German state television, and numerous local radio and television programs, and been quoted in Money magazine, The Washington Post and The Baltimore Sun, among others. Brett Weiss is the previous Maryland State Chair for the National Association of Consumer Bankruptcy Attorneys, a founding member of the Bankruptcy Law Network, on the board of the Maryland State Bar Consumer Bankruptcy Council, and a member of the American Bankruptcy Institute and the Bankruptcy Bar Association of Maryland. He has received the Distinguished Service Award from the National Association of Consumer Bankruptcy Attorneys for his work on behalf of consumers across the country. Mr. Weiss is admitted to practice before Maryland and District of Columbia federal and state courts, the United States Courts of Appeals for the DC, Fourth and Eighth Circuits, the United States Tax Court, and the Supreme Court of the United States, and has been practicing law since 1983.
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