What is the difference between a mortgage agreement and a deed of trust?

There are two main differences between a mortgage and a deed of trust. First, a deed of trust uses a third party, called a trustee, to hold the title to a piece of real estate while the borrower repays the lender. When the loan is repaid, the trustee transfers title to the borrower. However, if the borrower defaults, the trustee will transfer the title to the lender. This arrangement helps ensure that both parties' rights are respected.

The second difference has to do with the method for pursuing foreclosure in the event of default. Under typical mortgages, lenders must seek foreclosure through the court system—called judicial foreclosure. However, deeds of trust contain a power of sale clause that allows the trustee to pursue foreclosure outside of court—called non-judicial foreclosure. Non-judicial foreclosure is thought to be a faster and less costly method of foreclosing. Note that some mortgages (including LegalNature's mortgage agreement) also contain a power of sale clause, thus allowing lenders to choose whichever remedy they prefer.

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