If your mortgage has a trustee, it probably isn't a mortgage. While the term "mortgage" gets used casually to refer to a home loan, it's actually a technical legal term. In some states, a mortgage is the document that lets your lender take your property in foreclosure. In others, a trust deed is used in place of a mortgage.
Trust Deed Basics
When you take out a loan in a trust deed state, you sign two documents. Your loan agreement is called a promissory note and specifies how you pay your lender back. At the same time, you also sign a second document called a trust deed that gets recorded against your property's title. The trust deed puts the actual ownership of your home in a state of limbo. Eventually, you'll get the ownership for your property if you pay your loan, but if you don't pay your loan, the ownership crosses over to the bank's hands.
The mechanism by which your home's title is held in limbo is a trust. The person who controls the trust is called a trustee, and you're the trustor since you put your house into the trust. Trustees are usually title companies and, in most loans, don't do anything. However, they have the power to take your title and give it to your lender if you don't make your loan payments.
In a trust deed, the lender is called a beneficiary. Since you'd probably rather not have to give up your property if you don't pay on it, you don't really benefit from the trust. For the trustee, it's a responsibility. Your lender, on the other hand, doesn't give anything up by being name in the trust, since it already gave up its money in the separate promissory note, and may get your house out of the deal. It benefits, so it's the beneficiary.
How Mortgages Work
Mortgages are similar to trust deeds, but they don't have a trust in the middle. In a mortgage, you put your lender on the title of the property with you. As long as you pay your loan, the lender just sits there. If you don't pay, though, the mortgage gives it the right to foreclose and take the ownership of your property. Instead of having a beneficiary, trustee and trustor, mortgages have lenders and borrowers or, technically, mortgagees and mortgagors. In a mortgage, you're the mortgagor since you are actually giving the bank a mortgage interest in your property.
- Cornell University Law School: Legal Information Institute - Deed of Trust
- Realty Times: What's A Trust Deed? Is It a Mortgage?
- Nolo: What's the Difference Between a Mortgage and a Promissory Note?
- Realty Times: Mortgagee vs. Mortgagor
- American Bar Association. "Commercial Real Estate FAQs: What Is the Difference Between a Mortgage and a Deed of Trust?" Accessed July 31, 2020.
- Cornell Law School. "Deed of Trust." Accessed April 6, 2020.
- Consumer Financial Protection Bureau. "Deed of Trust." Accessed July 5, 2020.
- American Bar Association. "Glossary of Real Estate Terms: Deed of Trust." Accessed July 31, 2020.
- Consumer Financial Protection Bureau. "How Does Foreclosure Work?" Accessed July 5, 2020.
- American Bar Association. "Mortgage Note -- Deed of Trust Note." Accessed July 31, 2020.
Steve Lander has been a writer since 1996, with experience in the fields of financial services, real estate and technology. His work has appeared in trade publications such as the "Minnesota Real Estate Journal" and "Minnesota Multi-Housing Association Advocate." Lander holds a Bachelor of Arts in political science from Columbia University.