A deed of trust is used in lieu of a mortgage in “lien” states. A mortgage is a two-party document (grantor [borrower] and lender). A deed of trust is a three-party document (grantor [borrower], trustee, and lender [beneficiary]). Although the language of a Deed of Trust purports to convey the title to the named Trustee, it is usually not regarded as a conveyance in effect. The deed of trust creates a lien on property to secure payment of an indebtedness or obligation. However, the named trustee does have the power to convey the property in a foreclosure.
The terms “mortgage” and “deed of trust” are commonly used interchangeably. Both documents are used to secure the payment of an obligation or indebtedness, and both function in much the same way although, as mentioned above, they are different kinds of documents. Whether a mortgage or deed of trust issued is a function of state law and local practice. Most deeds of trust can be foreclosed in a non-judicial notice proceeding. Depending on state law, mortgages usually must be foreclosed by filing a foreclosure law suit in a court with jurisdiction. However, the laws of some states allow mortgages to be non-judicially foreclosed with proper notice.
Note: For purposes of this article, the same principles stated about mortgages are intended to also apply to deeds of trust.