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 Parties Involved
Which States Use Which Document?
- Mortgage agreements are used in:
- Deeds of trust are used in:
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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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Should I Use a Mortgage or a Deed of Trust?

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