How do mortgages and deeds of trust differ?

A mortgage and a deed of trust are both tools used in real estate financing, but they differ significantly in their structure and function. The correct answer emphasizes that a deed of trust involves a third party, known as the trustee, who holds the title to the property on behalf of the lender (the beneficiary) until the borrower (the trustor) pays off the loan. In this arrangement, the trustee has the authority to initiate the foreclosure process in the event of a default, which provides an added layer of security for the lender.

On the other hand, a mortgage operates as a direct agreement between the borrower and the lender without the involvement of a trustee. In this scenario, the borrower retains the title to the property, but the lender has a lien against it until the loan is fully paid off. While both legal instruments serve the purpose of securing a loan, the inclusion of a trustee in a deed of trust introduces a different process for handling defaults and foreclosures.

Understanding these distinctions is crucial for comprehending how real estate transactions are conducted and the implications of using one instrument over the other in securing financing.