Legal Question in Real Estate Law in California

Re: Deed of Trust v. Mortgage?

A mortgage is a contract by which specific property is pledged (without delivering possession) to secure the performance of an act, usually the repayment of a note. It is a two-party transaction involving a borrower and a lender.

A trust deed is a conveyance of property to a third party, called the trustee, for the purpose of securing an obligation (such as payment of a note) between a borrower (or trustor) and a lender (or beneficiary). The trust deed gives the trustee the power to sell the property under specified conditions (default) and also the duty to reconvey the trust property when the obligation is satisfied.

The power of sale held by the trustee allows foreclosure to proceed without court involvement, and this simplified means of foreclosure causes trust deeds to be favored by California lenders.

Some mortgages have been constructed giving what amounts to a power of sale to the lender, but they are cumbersome to use and offer no real advantage to the lender.

The term "mortgage" is also used informally to refer to home loans that are, in fact, notes secured by deeds of trust.

Lenders prefer note and deed of trust financing over mortgages because, in California, foreclosure is quicker and easier. Thus, rates are perhaps a bit lower and the product is much more readily available.

Most conventional mortgages would require going to court to process a foreclosure. Nevertheless, if a borrower defaults, he runs a very high risk of some kind of foreclosure proceeding, be it through the trustee's power of sale or through judicial foreclosure of a mortgage.

There are many other technical differences in the lender's foreclosure process and the borrower's rights. The repurcussions would vary in the procedural details, but not much in the end result.