How does a mortgage differ from a deed of trust?

A mortgage differs from a deed of trust primarily in the method of foreclosure. In a mortgage, the borrower (mortgagor) pledges property to a lender (mortgagee) as security for a loan, and if the borrower defaults, the lender typically must pursue a judicial foreclosure process. This involves going to court to obtain a judgment to sell the property.

In contrast, a deed of trust involves three parties: the borrower, the lender, and a third-party trustee who holds the title until the loan is paid off. If the borrower defaults under a deed of trust, the trustee can initiate a non-judicial foreclosure, which does not require court proceedings and can be a faster and less expensive process for the lender.

This distinction is significant in real estate financing because it affects the speed and cost of foreclosure, which can impact both borrowers and lenders. Understanding this difference can help individuals choose the best financing option for their needs and recognize the potential risks involved in borrowing against property.