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Should I Use a Mortgage or a Deed of Trust?

Whether you should use a mortgage agreement or a deed of trust when buying a house depends on which state the property is located in. In both documents, the home loan borrower promises to hand over the title to the property to the lender if the borrower is unable to pay back the loan. This means the mortgage agreement and deed of trust both pledge the property as “security” or “collateral” in case the borrower defaults on the loan. These documents are always signed together with a promissory note, which contains the actual promise to repay the loan.

The Main Difference

The main difference between the two documents, however, deals with how each handles the foreclosure process. Foreclosure is the process the bank uses to take over title to the property when the borrower defaults. Mortgage agreements deal with foreclosure through the court system, which is called judicial foreclosure. By contrast, deeds of trust handle foreclosure outside court, called non-judicial foreclosure, which is much cheaper and faster for the parties involved. Because of this difference, more and more states are converting to using deeds of trust every year.

The Parties Involved

Another difference is that mortgage agreements don't use a trustee. Instead, the main parties involved are the borrower, lender, and guarantor, if one is used. With a deed of trust on the other hand, a trustee is also used. The trustee basically holds the deed to the property until the loan has been paid off and then transfers the deed to the borrower. However, if the borrower defaults before paying off the loan, the trustee transfers the deed to the lender who will then foreclose on the property.

Which States Use Which Document?

The following lists show which states use which document as of July 2014. An asterisk (*) denotes states that allow the use of either document.

Mortgage agreements are used in:

  • Alabama*
  • Arizona*
  • Arkansas*
  • Connecticut
  • Delaware
  • Florida
  • Illinois*
  • Indiana
  • Iowa
  • Kansas
  • Kentucky*
  • Louisiana
  • Maryland*
  • Michigan*
  • Montana*
  • New Jersey
  • New York
  • Ohio
  • Oklahoma
  • Pennsylvania
  • South Carolina
  • South Dakota*
  • Vermont
  • Wisconsin

Deeds of trust are used in:

  • Alabama*
  • Alaska*
  • Arizona*
  • Arkansas*
  • California*
  • Colorado*
  • Connecticut
  • District of Columbia*
  • Delaware
  • Florida
  • Georgia*
  • Hawaii
  • Idaho
  • Illinois*
  • Kentucky*
  • Louisiana
  • Maine
  • Maryland*
  • Massachusetts
  • Michigan*
  • Minnesota*
  • Mississippi*
  • Missouri*
  • Montana*
  • Nebraska;
  • Nevada
  • New Hampshire
  • New Mexico
  • North Carolina
  • Oregon
  • Rhode Island
  • South Dakota
  • Tennessee
  • Texas
  • Utah
  • Virginia
  • Washington
  • West Virginia
  • Wyoming

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