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Deed of Trust v. Mortgage

A deed of trust can be used in place of a mortgage in certain states, including Virginia. Here is the low down on how deeds of trusts differ from mortgages.

What is a deed of trust? It is a transfer in land by a borrower to a lender to secure the payment of the borrower’s debt. In exchange for a loan of money from the lender, the borrower places legal title to the property in the hands of the trustee who holds it for the benefit of the lender (who is named in the deed as the beneficiary).  The borrower retains possession of the property as well as equitable title to it. Transfer of legal title to the trustee is void when the debt is timely paid.  However, if the borrower defaults, the trustee has the power to sell the property and pay the lender the proceeds to satisfy the debt.

How are deeds of trust and mortgages similar?

  • Both are used in bank loans and private loans
  • Both secure repayment of a loan with real estate
  • Both are considered evidence of a debt
  • Both are recorded in the county where the property is located

How do deed of trusts and mortgages differ?

  • The number of parties involved:  A deed of trust is an arrangement among three parties—the borrower, the lender, and an impartial trustee, whereas a mortgage is between the lender and the borrower
  • The procedure for enforcing the lien: A mortgage is enforced pursuant to a court supervised foreclosure process, whereas a trust deed gives the lender the option to bypass the courts and instead hold a non-judicial foreclosure or trustee’s sale

An advantage of a deed of trust is that it simplifies the foreclosure process because the lender does not have to go to court to foreclose. Further, the time period for a trustee’s sale can be very short—in Virginia, it can be as short as 30 days.  However, there is a greater chance for litigation over title in a trustee’s sale created by a deed trust because the sale has not been judicially approved.

As a prospective homeowner, if you need to take out a loan to purchase your real estate, it’s important that you understand exactly what you are signing.  Your trusted Virginia real estate attorney can guide you through the process.

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