What is the main distinction between a mortgage and a deed of trust?

A mortgage fundamentally involves two parties: the borrower (mortgagor) and the lender (mortgagee). In this arrangement, the borrower pledges the property as collateral for the loan, providing the lender with a security interest in the property. If the borrower defaults, the lender can initiate foreclosure proceedings to recover the remaining loan amount by selling the property.

In contrast, a deed of trust typically involves three parties: the borrower, the lender, and a third party known as the trustee. The borrower conveys the property to the trustee, who holds it as security for the loan on behalf of the lender. This arrangement allows for a more streamlined foreclosure process if the borrower defaults, as the trustee can initiate the foreclosure without going through the court system, which is often required in a mortgage scenario.

Understanding this distinction is critical for anyone studying real estate law and financing, as it impacts the rights and obligations of the parties involved as well as the foreclosure processes in different lending arrangements.