Understanding the
MORTGAGE and DEED OF TRUST Instruments
What are the
MORTGAGE and DEED OF TRUST instruments?
Let’s start with the MORTGAGE insatrument first. The Mortgage instrument is a legal document that creates a security interest in real property. In simple terms, the Mortgage is the document that pledges the property as collateral for the repayment obligation described in the NOTE.
Many homeowners are surprised to learn that the NOTE and the MORTGAGE are separate documents that serve different purposes. The NOTE generally contains the promise to repay.
The MORTGAGE generally secures the property in support of that promise. Both instruments are usually signed at Closing and become important components of the overall mortgage package.
Why Is a MORTGAGE instrument important?
The MORTGAGE instrument contains the rights, responsibilities, and obligations that continue throughout the life of the loan.
While homeowners frequently focus on the interest rate and monthly payment, the Mortgage may contain provisions regarding:
- Property taxes
- Homeowners insurance
- Occupancy requirements
- Property maintenance
- Transfer of ownership
- Notice requirements
- Default provisions
- Acceleration provisions
Many of these provisions continue long after the closing appointment has ended.
What Information Is Typically Found in a Mortgage?
MORTGAGE instrument do hasa some variaitons, but in most cases contain information regarding:
- The borrower
- The lender
- The property address
- The legal description of the property
- The amount of the loan
- Insurance requirements
- Property tax obligations
- Escrow requirements
- Borrower responsibilities
- Events that may constitute default
- Rights and remedies available under applicable law
Homeowners should maintain a complete executed copy of the Mortgage as part of their permanent records.
Questions Every Homeowner Should Ask
Before signing a MORTGAGE (or DEED OF TRUST), homeowners should definitely ask the following:
- What obligations continue after closing?
- What insurance requirements apply?
- Are escrow payments required?
- What circumstances may constitute default?
- What notice provisions apply?
- Are there occupancy requirements?
- Do I have a complete copy of the executed Mortgage?
Understanding these provisions before signing may help homeowners avoid surprises later.t works is critical to understanding the true source of the money being lent and who the actual creditor is in the transaction.
We will go into much deeper depth and revealment on this matter as we continue on our educaiton path.
Next, let’s deal with the DEED OF TRUST
A DEED OF TRUST instrument serves a similar purpose as a MORTGAGE instrument, it secures the property as collateral for the repayment obligation described in the NOTE.
The primary difference is that a DEED OF TRUST typically involves three parties rather than ony two which are defined upon the MORTGAGE.
These parties often include:
- Trustor (Borrower)
- Beneficiary (Lender or Secured Party)
- Trustee (Independent Third Party)
The Trustee is generally identified within the Deed of Trust and may perform certain functions as provided by the document and applicable state law.
The takeaway is that you may not even realize that you are creating a Trust with the other parties as the “Trustor/Grantor” – if you are unfamiliar with these terms, plesae take the time to look them up in a legal dicitonary like Black Law 6th edition online, a Trust has very specific rulels and authorties that must be adhered to nad since you ar the Trustor/Grantor, the one who is creating the Trust, it is up to you to KNOW what you are doing.
Why Do Some States Use a MORTGAGE and others a DEED OF TRUST?
The primary reason is that Real estate laws vary from state to state; some are knonw as “judicial states”and others as “non-judicial states” which refer to the process of initating a foreclosure proceeding in the event of default by the borrower.
In a “judicial state” a court action is required in order for a foreclosure process to be executed; a non-judicial state means that a petitiotmn for a forelcosure can be done through administrative process without a court, unless the Borrower objects and challenges the standing of the entity attempting to dforeclose.
Extreme HINT: Except for a hard-money lender who actually particiapted in the Closing and handed you cash or a check at the Closing, there is no entity that has standing to foreclose on your property in today’s non-hard money lending processes, so those states using MORTGAGE instruments will be tested in a court proceeding, while other states use a DEED OF TRUST may get away with literal threft unless you speak up and demand proof of claim to their standing.
Deeds of Trust are commonly found in states such as:
- Colorado
- California
- Texas
- Virginia
- Arizona
- Nevada
Most western states utilize a DEED OF TRUST instrument rather than traditional a MORTGAGE instrument. Specific requirements and procedures associated with these instruments are governed by state law.
Mortgage vs. Deed of Trust
Remember, although the terminology may differ, both documents serve a similar purpose. Both are designed to:
- Secure the property
- Support the repayment obligation described in the NOTE
- Establish borrower responsibilities
- Define certain rights and obligations associated with the property
For many homeowners, the practical day-to-day responsibilities aer very similar regardless of whether a Mortgage or Deed of Trust was used during the transaction.
What Information Is Typically Found in a DEED OF TRUST?
A DEED OF TRUST insturment contains or defines information regarding:
- The borrower/Trustor (this should pique your interest as being the Trustor in a Trust means you have the ulitmate authority)
- The lender or beneficiary (these terms are confusing, take the time to look them up in Black Law as they relates to a Trust)
- The trustee
- The property description
- Insurance requirements
- Property tax obligations
- Occupancy provisions
- Maintenance requirements
- Default provisions
- Notice provisions
- Rights and remedies under applicable law
Like a Mortgage, many of these provisions continue throughout the life of the loan.
Understanding whether the transaction used a MORTGAGEor a DEED OF TRUST may help homeowners better understand future notices if they get behind on payments, or receive communications from the servicer or mortgage company, which might include copies of recorded documents, and public records related to the property.
Your Closing package needs to be kept in a safe place, as it may be necessary to refer back to it in the future should you receive a notice regarding a change in servicer or notices pertaining the property.
Questions Every Homeowner Should Ask
- Did my transaction use a Mortgage or a Deed of Trust?
- Who is identified as the Trustee?
- Who is identified as the Beneficiary?
- What obligations continue after closing?
- What notice provisions apply?
- What responsibilities am I expected to maintain throughout the life of the loan?
- Do I have a complete copy of the executed document?
Understanding these provisions may help homeowners better understand their rights and responsibilities after closing.
*MortgagePreCheck Tip
Whether your transaction uses a Mortgage or a Deed of Trust, the document typically contains important provisions regarding insurance, taxes, occupancy, maintenance, notices, and borrower responsibilities.
As a Homeowner, it is imperative that you carefully review these provisions prior to Closing, then retain complete copies of all executed documents, and maintain those records throughout the life of the loan.
Here is a comparison table of the MORTGAGE vs. a DEED OF TRUST
| Topic | Mortgage | Deed of Trust |
|---|---|---|
| Secures Property | Yes | Yes |
| Supports the NOTE | Yes | Yes |
| Recorded in Public Records | Yes | Yes |
| Borrower Included | Yes | Yes |
| Lender / Beneficiary Included | Yes | Yes |
| Trustee Identified | Usually No | Usually Yes |
| Used in Certain States | Yes | Yes |
|
Previous Article
NOTE |
|
Next Article
What Happens After Closing? |