Mortgages out and Deeds-of-Trusts are in

When you finance the purchase a home, you obtain a mortgage loan - right? Actually, in most states you don’t! Instead, what you obtain is a real estate loan secured by a Deed-of-Trust.

A mortgage is a written instrument that creates a lien on real estate as sucurity for the payment of a specified debt. If a borrower defaults under the terms of the mortgage, the lender must start a judecial foreclosue action in a court with jurisdiction. A Decree of Foreclosure is issued by the court followed by a Sheriff’s Sale. The borrower, if he files a right of homestead, then has up to 12 months to redeem the property by paying all due amount plus legal expenses. Mortgages were used for most real estate purchases until the 1970’s.

A Deed-Of-Trust is an instrument used in liew of a mortgage. Legal title to the property is vested in one or more trustees to secure the repayment of the loan. If the borrower defaults, the trustee files a Notice of Trustees Sale. Usually in about 120 days the Trustees Sale is held and title passes to the highest bidder at the sale (usually the lender). There is no redemption period.

It is much quicker and less expensive for a lender to recover a security (the property) with a Deed-of-Trust than it is with a Mortgage. Therefore, mortgages are seldom used in states where deeds-of-trusts are an alternative.

Remember, when a lender says they have "mortgage programs to fit your borrowing needs," they most likely mean "real estate loan programs to fit your borrowing needs." For the most part, mortgages are a thing of the past.